Conventional wisdom says “Money can’t buy happiness,” but in her new book All the Money in the World: What the Happiest People Know About Getting and Spending, Laura Vanderkam sets out to re-examine the conventional wisdom surrounding money.
Money is just a tool. Some people use it well; some people don’t. All The Money explores how happy people strategically use this tool to build the kind of life they want–for themselves, and for others.
The problem is that most of us aren’t very good at predicting what expenditures will make us happy. Americans tend to overspend on houses, cars and other huge material purchases that we expect to bring us happiness. These big-ticket items don’t make us nearly as happy once the novelty wears off, yet they eat up large chunks of our budgets, leaving little available to spend in ways that actually could boost our happiness.
Vanderkam brings this concept of opportunity cost to life in one of my favorite chapters, What Else Could That Ring Buy? In 2010, the average couple spent $5,392 on an engagement ring before the marriage began. What if they skipped the expensive ring and put that money to use a little down the road when funds are tight and time together is hard to come by? With that money, “a set of new parents could pay a babysitter $50 a night for 107 nights so they could have time to themselves.” The average wedding florist bill runs $1,988, but could just as easily be spent later “as 198 thinking-of-you $10 bouquets–a once-a-month gesture for a solid 16.5 years.”
It’s not wrong to spend a lot on a wedding or a ring, but thepoint is that we can choose how we spend our money–and we might be a lot happier if we used it more strategically. Figure out what makes you happy, and spend accordingly.
For me this means buying fresh flowers and frequenting independent coffee shops with friends. It means hitting the neighborhood farmers’ market and local small businesses. It means hikes and picnics and family vacations; donating to our church and causes we believe in. And just as importantly, it means not spending a lot on fashion, media, and home decor–because those things just aren’t as important to me.
I’d consider myself financially savvy, yet Vanderkam’s no-nonsense, low-drama, just-the-facts-ma’am approach to money has shifted my outlook on my family’s finances, and I suspect All the Money–like her previous book 168 Hours–is going to stay with me for a long time.
Laura wrote a nice summary here on what the happiest people taught her about money, but she was also kind enough to answer a few questions about money for us:
Anne: Why do people accept the conventional wisdom about money, and why is it so hard to overcome?
Laura: Humans are social creatures, and money is one way we compare ourselves with others. Consequently, we imbue money with lots of meaning, and we come up with all kinds of maxims that may or may not be true. I’m sure if your readers tried, they could think of many money beliefs they’ve inherited from their parents.
In All the Money in the World, I write about how hard it was for me to buy name brand Ziploc bags the first time. I’ve wasted $2 too many times to count in my life, but spending it consciously on a higher-priced item when the generic ones are probably fine? The feelings of profligacy were almost overwhelming.
We repeat various mantras of scarcity: money doesn’t grow on trees; easy come, easy go; money can’t buy happiness; money is the root of all evil. The reality is that money is just a tool. Used properly it can help us build the lives we want and a world we’d want to live in. But treating it that way requires stepping back from the drama and trying to extricate ourselves from the pack mindset, and likely from beliefs we learned growing up. This is clearly not easy to do.
Anne: I thought the examples in 168 Hours seemed aimed at an urban, affluent crowd; I had a much easier time relating to your anecdotes in All The Money. Has moving from New York City to the Philadelphia suburbs changed your outlook?
Laura: When life changes, your outlook changes, and certainly moving to the ‘burbs was a big shift. I now have no idea how all of us fit in 1500 square feet in NYC, and my house in PA, which used to feel large, now feels about right.
But while my examples may be slightly different, I think that my underlying philosophy is still the same: we have a choice about how we spend our money and our time, and even in the suburbs, you can make choices like living closer to the places you need to go so you don’t spend as much time in the car, or spend as much of your hard-earned money on gas. We live within walking distance of a post office, grocery store, coffee shop, my son’s preschool, etc. I’m trying to keep some of the urban feel!
Anne: Even before reading your book, I knew my husband and I have gained a lot of happiness by sweating the big stuff: we’ve always had a tiny mortgage and no car payments. Now we’re debating making paying off the mortgage a financial goal. Is this likely to make us happy?
Laura: Paying off your mortgage could make you happy, because it will free up cash for other things that might be new and exciting (like travel, or more pro-active charity). Some people really like the idea of being completely debt free.
However, if your mortgage is truly a “tiny” percentage of your income, then you might not get quite the happiness boost that someone who was devoting a third of their income to a mortgage would from suddenly being free of that debt.