Happy Money – Buy Now, Consume Later

I began summarizing the key principles from Happy Money by Elizabeth Dunn & Michael Norton a while back but then my blogging career came to a grinding halt. My interest in Happy Money was recently reinvigorated when I heard Elizabeth Dunn speak at the XY Planning Network’s annual conference. Hearing her speak about the principles in Happy Money was the catalyst I needed to finish writing about them.

This post is focused on the book’s fourth concept – Pay Now, Consume Later. You can read summaries of the first three principles at the links below. I will address the last concept in a future post (seriously!).

    1. Buy Experiences
    2. Make It a Treat
    3. Buy Time
    4. Pay Now, Consume Later
    5. Invest in Others

Most of us have it backwards. We impulsively buy now and then pay for it later when our credit card payments come due. This ingrained approach to spending should be flipped on its head according to the research summarized in Happy Money.

The burden of convenience

Buying now and paying later is now easier than ever with ample access to credit and technology that lets us transact with a touch or a tap. The convenience is unquestionable but it comes with a price – detachment from our spending habits.

By using credit, most of us lose track of how much we spend. A study quoted in Happy Money asked thirty participants to estimate their credit card balances before opening their statements. How many of the participants do you think underestimated their balance? I guessed 90% but was wrong. The actual answer is 100%. Every participant underestimated their credit card bill and did so by an average of nearly 30%. Yikes!

Many of these credit card charges are reflexive purchases that add little or nothing to our satisfaction with life. When we add this to the pain associated with opening our statement at the end of the month, it is easy for our spending habits to give us an emotional hangover. We then feel burdened by debt if we don’t pay off our credit cards in full each month.

A better way

Imagine that you scheduled and paid for an upcoming vacation. Two months from now you will trade in your humdrum work routine for a snorkeling trip along the Great Barrier Reef in Australia. You will stay at an all-inclusive resort so all of your food, drinks, and activities are included in the fee you have already paid. Paying in advance benefits you in two ways.

First, delaying gratification by paying now and consuming later provides time for excitement about a purchase to build and for you to enjoy the anticipation. Half of the fun and benefit is the time you will spend thinking about how incredible the experience will be.

Second, paying for the trip up-front frees you from making and worrying about spending decisions while you’re on vacation. You can enjoy your snorkeling excursions and meals without having to think about money. The trip feels free.

Applying the principle

When consumption precedes payment, we are later reminded of the cost of our purchases at a time when the enjoyment of the purchase or experience is a distant memory. On the other hand, paying first and enjoying later gives us time to anticipate the excitement of the future experience and rewards us with the sensation that we’re experiencing something for free.

I encourage you to think of ways to make pay-now, consume-later work for you. Buy tickets to a concert or game in the future. Pay for your next vacation in advance. Save up for a big purchase over time. Utilizing this principle may not only result in happier spending but may also help you spend less.

In my next post, I will explore the final Happy Money concept: Invest in Others.

Happy Money – Buy Time

“Most people would benefit from using their money to change the amount of time they spend on three key activities: commuting, watching television, and hanging out with friends and family.”

I have been summarizing key principles from Happy Money by Elizabeth Dunn & Michael Norton. This post is focused on the third concept – Buy Time. If you missed the first two themes, click the links below.

  1. Buy Experiences
  2. Make It a Treat
  3. Buy Time
  4. Pay Now, Consume Later
  5. Invest in Others


Buy Time

By now, you’ve probably heard that you should use your money to buy experiences rather than stuff to improve the joy you get from spending. But experiences take time. If your days are full of commuting and working then there’s not much time left for anything else. No wonder so many of us default to spending our money on stuff and trying to relax by watching TV. The internet has made it easy to buy practically anything we want in a few clicks and to watch limitless amounts of TV series, movies, and Fail videos. Yet these activities are likely counterproductive to improving our happiness and sense of well-being.

Once our basic needs are met, time is our most valuable asset. Time to do the activities we enjoy. Time to exercise. Time to be with friends and family. The authors reviewed happiness research and listed some of the most and least pleasant ways we spend our time as shown in the chart below:

Rarely Unpleasant Rarely Pleasant
  • Exercise
  • Reading
  • Praying
  • Having sex
  • Working
  • Commuting
  • Shopping
  • Doing housework

Consider Ben, who drives 45 minutes to work, plugs away at his desk all day, and then drives 45 minutes back home (an hour if he hits traffic). By the time he and his spouse  (who also works full-time) make and clean up dinner and get the kids in bed, he is exhausted and plops down on the couch to watch TV. An hour or two later, he goes to bed without having been active all day. Rinse and repeat the rest of the week.

Now look back at the Rarely Pleasant list above. Ben spends most of his days doing unpleasant things. But he has a big house, nice car, and family to help support. What’s a guy to do?

For starters, he could find a new job or move closer to work. Commuting is one of the least pleasant ways to spend time. If you commute, you not only spend that time in a bad mood but also cannot use it on something more fulfilling like going biking with your kids or meeting a friend for coffee or hitting the gym. Commuters report less job and free-time satisfaction than non-commuters. Ben may have to take a pay cut to move closer to home, but he could use that additional time in ways that generally improve happiness such as exercise, volunteering, and socializing. The authors of Happy Money point out that the average American worker works two hours of every day just to pay for their cars. Yikes!

Next, Ben could turn off his TV. The average American watches two months of television per year according to Happy Money. Wow! While an occasional show can be beneficial, too much TV leads to decreased happiness. By limiting his TV viewing, Ben will get back 5-10 hours per week to spend on activities that will have a positive effect on his satisfaction with life.

Now that we have Ben all squared away and happy, what else can we do to benefit from the “buy time” principle? Learn to ask ourselves how our spending choices will affect our time. Here are some examples:

  • How will this new pair of shoes affect my time next Tuesday?
  • Will buying a Ultra HD 4K TV compel me to watch more TV?
  • Will accepting this new job offer give me more or less spare time?

The authors state, “By consistently asking yourself how a purchase will affect your time, your dominant mind-set should shift, pushing you toward happier choices.”

What are some of the ways you have bought time for yourself? How did you use it?

No More Mr. Nice Guy

nice guy

photo by Andrew Caird


People often tell me that their financial adviser is a “nice guy”, and I think to myself (or say out loud if I’m feeling bold), “He can’t be too nice if he sold you that.”

Please don’t call me a nice guy. Not if nice guys sell people financial products they don’t need. Not if nice guys spend more time learning sales techniques than gaining financial planning knowledge. And not if nice guys charge too much and deliver too little.

You wouldn’t hire an attorney with a great personality if you knew she wouldn’t represent only your interests. And you wouldn’t trust your charming doctor if you knew she was compensated for prescribing you certain drugs. So why would you hire a financial adviser who isn’t required to represent your best interest and may be incentivized to do otherwise?

When it comes to getting financial advice, I encourage you to evaluate potential advisers based on their qualifications, experience, and compensation method. Make sure that whomever you choose acts as a fiduciary who is required to put your best interest first. If he also happens to be a nice guy, that’s icing on the cake.

Happy Money – Make It A Treat

“Abundance…is the enemy of appreciation.”

I am continuing my review of Happy Money by Elizabeth Dunn & Michael Norton. Let’s take a look at the second major concept from the book – Make It a Treat. (You can click the “Buy Experiences” link below if you missed it.)

  1. Buy Experiences
  2. Make It a Treat
  3. Buy Time
  4. Pay Now, Consume Later
  5. Invest in Others
Katie's Cupcakes

photo by Andrew Caird

Make It a Treat

Living in a wealthy country in an age when goods flow quickly across the world, we have unprecedented and continuous access to nearly anything we want when we want it. Our favorite fruits are available year-round even when the ground is frozen outside. We can get the best chocolate and coffee from around the world at our local stores everyday.

Sounds great, right? Actually, overabundance can desensitize us to life’s pleasures. Just knowing we can have what we want anytime we want it makes us appreciate it less. If you get an extra-hot, double-shot, skinny mocha everyday, it will lose its luster.

Advertisers keen to human behavior know that we appreciate things more when they appear scarce: “Limited time only!”, “Three left at this price!”.  In Michigan where I live, people rejoice each summer when Bell’s Brewery releases its Oberon brew because it is only available part of the year. Our brains like change. We will be better off if we give our brains what they want by making our purchases a treat.

Here are some make-it-a-treat tips you can put into action:
  • Change your routine. If your daily latte has become mundane, limit yourself to one or two per week.
  • Take a break. Don’t binge watch your favorite TV show. Take some time off between episodes. Even commercials can make us appreciate our favorite shows more because it gives us a few moments of anticipation.
  • Buy new experiences to share with your partner. New adventures are great for nurturing long-term relationships.
  • Take time to enjoy and savor food. A large order of fries in Paris is 30% smaller than a large order in the U.S. but French patrons take 50% longer to eat them than their U.S. counterparts.
  • Travel less. If you spend a lot of money on frequent travel, you may not appreciate each trip much.
  • Appreciate what you have. As the authors point out, “Knowing something won’t last forever can make us appreciate it more.”
  • Think about your future self. Before you buy, consider how a purchase will make you feel after the initial exhilaration of the “test drive” wears off. Our purchases give us less joy as time passes.

I was explaining the make-it-a-treat concept to my eight year old daughter and I saw a light bulb go on. She said, “It’s like birthdays. It wouldn’t be special if you had one everyday”. Out of the mouth of babes.

Happy Money – Buy Experiences

I am fascinated by research on the relationship between money and happiness. So I was excited to read the recent book, Happy Money by Elizabeth Dunn & Michael Norton. The authors combed and summarized research on the ways money can buy happiness, and offer the following five principles.

  1. Buy Experiences
  2. Make It a Treat
  3. Buy Time
  4. Pay Now, Consume Later
  5. Invest in Others

There is no substitute for reading the book, but I plan to summarize each principle for those who would like a taste. I’ll start with the first principle: Buy Experiences.

Buy Experiences

The gist of this principle is that you will get more happiness for your dollar by buying experiences instead of stuff. While I was already aware of this general concept, Happy Money provided more color and additional insights such as:

  • palm treesMoving to a nicer and bigger home will not necessarily make you happier. After some time passes, you may report being happier with your house, but not with your overall life. As the authors point out, “buying a house often isn’t a good investment in our happiness”.
  • People who spend more of their income on leisure activities report higher life satisfaction.
  • Part of the reason experiences trump stuff is that experiences tend to connect us with other people.
  • People more often define themselves by their experiences (e.g. completed triathlon, trip to the Galápagos Islands) than by their material possessions.
  • You’ll get the most bang for your experience buck if: 1) the experience provides social connection, 2) gives you a story to tell for years, 3) is tied to your sense of self, and 4) is unique.
  • The pleasure we derive from material goods fade over time as we become acclimated to them but experiences tend to get better with time.

This post is for educational purposes only and should not be construed as advice specific to your situation. You should consult a legal, accounting, or investment professional before deciding the appropriate course of action for you.

One Most Important Thing

George Vertue [Public domain or Public domain], via Wikimedia Commons

George Vertue [Public domain or Public domain], via Wikimedia Commons

“I give myself sometimes admirable advice, but I am incapable of taking it.”  ~Mary Wortley Montagu

I hear you, Mary. Sometimes I give my clients advice that they do not implement and I wonder why not. I think that sometimes they choose not to take all of my advice, and I have no problem with that. I don’t take all of my doctor’s advice. But other times, I believe that they plan to act on my advice but then do not. I have assumed that they simply did not have or make the time. But one of my clients recently gave me some insight into his behavior that told a different story.

He explained that he is not very interested in the mechanics of his finances, so it was easy for him to ignore my detailed instructions for rebalancing his portfolio. Then he told me what would help him, and introduced me to his handy acronym – OMIT. It stands for One Most Important Thing. He wanted me to give him advice and instructions in bite-size chunks rather than all at once. He asked me to tell him the most important thing he should do for his finances at that moment. When he reports back that he has completed it, then give him the next action item to (not) OMIT.

I really like the concept and I now use it regularly for my own work. I think to myself, “What’s the one most important thing I should be doing right now?”. Still, I realize that everyone is different and what works for one client may not work for another. During your next financial review, let’s talk about how I can provide you with advice that best suits your style and past behavior. Maybe OMIT will work for you.