How To Decide What’s Worth Splurging On When Money Is Tight
When money is tight, splurging may be the last thing on your mind, but in some cases, a small splurge here and there can actually increase happiness without derailing your finances. According to Robert Johnson, PhD, CFA, CAIA, professor of finance, Heider College of Business, Creighton University, choosing what to splurge on is a matter of “personal preference and which expenditures provide us happiness.”
Because everyone is different, Johnson hesitated to identify specific items or experiences that will bring the most happiness: “I’m weary of hearing proclamations from some so-called personal finance gurus about how people should stop their daily coffee purchases.”
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Because getting coffee often means more than getting coffee, like a chance to gather with friends, he said that it may actually be “one of the most economical purchases one makes given the amount of happiness it brings per dollar spent.”
Does that make it worth the splurge? That’s a matter of personal preference, but there is data to suggest which types of spending or splurges bring the most happiness, even when money is tight. Johnson recommended building splurges into the budget and said, “the key is to budget in order to maximize your own unique preferences and not those of others.”
The following are four types of splurges that may be worth it even when money is tight.
Spending Money on Others
Called “prosocial spending,” spending money to buy something for someone else can bring more happiness than spending it on yourself. This means treating someone else to a coffee or buying them a small gift can be a worthwhile splurge. A Stanford Business article explained this concept, found in the book "Happy Money: The Science of Smarter Spending," and said that “investing in others can make you feel healthier and wealthier, even if it means making yourself a little poorer.”
Whether you’re donating to a cause you support or taking a friend to lunch, spending money on others even when money is tight can be worth it.
Choosing an Experience
Another idea in "Happy Money: The Science of Smarter Spending" and explained by Harvard Business Review is that buying an experience, like concert tickets or a trip, brings more happiness than buying items, making experiences a more splurge-worthy purchase than a gadget or clothes. Unlike a material good that you may lose interest in over time, you can relive an experience in your memory as well as share the memory or experience itself with others.
Using Your Personality as a Guide
A study by Yale University Fox International Fellow and academics at the University of Cambridge studied over 75,000 UK bank spending transactions and found that those whose spending aligned with their personality were happiest. A second experiment backed up the study and showed, for instance, that extroverts who spent their money at a pub were happier than when they spent it at a bookstore while introverts were the opposite.
Johnson emphasizes this idea: “When you budget, recognize that not everyone values the same goods and experiences equally. You should take your personal preferences and values into account.”
What one person might see as frivolous, another might see as the thing that will bring them the most happiness, and that’s worth the splurge.
Buying Time
Using money to buy time brings more happiness in wealthier countries than it does in lower income countries, according to a study conducted by the University of British Columbia. If you’re in a position to buy time by splurging on a house-cleaning service or bringing home takeout instead of cooking, it can bring joy even months after the original purchase because of the time you got back to do something else you enjoy.
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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