Laura Vanderkam offers a total rethink about financial planning in her new book, All the Money in the World: What the Happiest People Know about Getting and Spending. Every dollar is a choice, she says. So when you think more broadly about how you spend it, you’ll find that money can buy happiness. The Allstate Blog caught up with Vanderkam to talk about money and happiness (part one in a series; part two, Don’t Let Your Emotions Get the Best of Your Finances), why extreme couponing might be a waste of time, and why you should keep on enjoying those morning lattes.
ALLSTATE BLOG: Many personal finance books focus on the tiny expenditures that take a cut out of budgets. But you tell people to keep those small indulgences and, instead, scale back the big-ticket items.
VANDERKAM: Small indulgences have an outsized effect on happiness. Buying a house and buying a latte will both make you happy when they come into your possession, but you only buy a house once every few years (or decades). You can buy a latte three times a week, and you’ll enjoy it every time. When it comes to happiness, the general thrust of the research is that frequency trumps intensity.
AB: So, lattes trump McMansions?
V: A house, a fancy car, or expensive furniture certainly make you happy when you buy these objects. But then you adapt to them. Happiness research is finding that variability forestalls adaptation. That’s one reason that travel, and getting together with friends, tends to make people happier than their furniture. Furniture is always the same. Every trip is a new adventure.
AB: You also say that, rather than spending loads of time scrimping (extreme couponers come to mind), people should invest time in earning more. So … more work makes us happier?
V: Work can make you happy if you choose the right kind of work. These days, many people moonlight by doing something creative—the thousands of merchants on Etsy and Zazzle come to mind. But even if you like nothing more than sitting on the sofa watching TV, people change jobs pretty frequently these days. Positioning yourself to get a higher salary at your next job means you can spend less time hunting around for discarded coupon circulars and more time watching your shows.
AB: And then there’s your take on retirement … the idea that the allure isn’t about “not working” but a result of people’s dissatisfaction with their current work.
V: If you’ve been stuck in the grind for years in a job you don’t like, the lure of retirement is freedom. But a better question than the exact day you want to retire is what kind of work you’d enjoy so much that you’d never want to retire from it. What if your gig was something part-time and flexible? What if it tapped your hobbies? And then, here’s the real question: how can you get into some kind of job that looks a lot like that now? You don’t have to wait until age 65 to live your dreams.
AB: Love that. You also suggest couples look at expenditures as a series of choices (like a spendy diamond engagement ring vs. 100 date nights after you’re married).
V: When you’re in the middle of planning your nuptials, it seems very important that you get the details right. It’s hard to picture yourself, 10 years hence, exhausted from work and caring for three children under the age of six. So the fact that the amount of money you’re about to blow on a wedding reception could pay for a cleaning service for years never enters your mind. One way to try to think long-term is to talk to couples who’ve been together for 10 to 20 years about what ways they think money could have made their lives easier during that time. Then, go ahead and plan a great wedding. But start saving some money, too, for those life enhancers older couples tell you about.
AB: What advice do you have for people who are finding it a rough go in this economy?
V: A key skill people need to learn in this economy is how to be entrepreneurial. We can no longer count on somebody giving us jobs. Often, we have to make our own. This involves asking several questions: what skills do I have, or could I learn? Which of these will people pay me for? How do I find those people?
AB: So, what’s in your joy budget?
V: These days, I buy more lattes. I buy more flowers. I try to get together with friends and “make a fuss” for social occasions. But we spend less than we could in other areas that don’t make us as happy, like clothes. While I was writing All the Money in the World, we actually moved from New York to Pennsylvania, in part for the lower cost of living. Splurging on what makes you happy, and scrimping everywhere else sounds pretty smart to me.
AB: To us too. Thanks for chatting.
Photo: Michael Falco