Money doesn't buy happiness, but what you spend it on can affect your satisfaction. Beyond that, how you pay has an impact on your happiness too. To get the most out of something you spend money on, it helps to pay for it in advance.
Australian money photo by Shutterstock
You probably already know that spending and happiness are indeed linked. Some purchases make us happier than others, and if you want to get the most out of your money, it makes sense to spend on the things that bring you the most joy. But it's not just what we buy that affects our happiness, it's also how we buy it.
To combat overspending, many personal finance experts recommend paying for stuff with cash. The consumption is more direct with cash; you feel it more. And it works, according to research from MIT. Researchers found that subjects were willing to spend twice as much on something when they paid with a credit card compared to paying with cash. Other researchers call it coupling: the degree to which paying is linked to consumption. Credit cards weaken coupling; cash tightens it.
But psychologist Hal E. Hershfield brings up an interesting point about this phenomenon. The flip side of coupling is that we're also less likely to enjoy our purchase when we're closely linked to it. It's more painful. The awareness of dropping $150 cash for a hotel can take away from the fun of travelling, for example. So Hershfield offers a solution:
If you want to derive more enjoyment out of what you consume (think about going on vacation but being stressed about how much various things cost) then pay for the experience in advance. Doing so decouples the pain of paying from the consumption of the experience. Prelec and Loewenstein, in fact, mention a concept known as prospective accounting, in which consuming something that has already been paid for can be enjoyed as if it was free. This is akin to prepaying for a hotel room, and then having the pleasant feeling that the room was free upon receipt of the zero-balance bill.
Going back to the hotel example, this would mean paying online weeks in advance. You're decoupled from the act of paying, and you can enjoy your trip more.
Overall, it's about balancing the pain of paying with the danger of overspending. If your goal is to spend less, you might need to tighten your coupling. But if you want to fully enjoy the experience you're paying for, you might consider paying in advance to weaken the coupling.
Either way, it should go without saying that you want to make sure you spend responsibly. To check out the rest of the post, head to the link below.
The Way We Spend Impacts How We Spend [Psychology Today]