Science tells us that money can buy happiness – up to a point. There comes a time when an increase in income beyond a certain level that happiness doesn’t increase. That level is on average around 3 times the poverty level.

In 2005 the poverty level was around £268/wk for a normal family. It’s increased a bit to £288 in 2008. So three times that is £864/wk or around a combined household income £45K. This being after tax so the salaries would be a bit higher. I’m no accountant but I’m sure some of the readers of this blog can tell me what it would be.

The reason for the level seems to be that once you’ve had enough money to buy the basic items for survival such as food, shelter, security and little bit for rainy days any extra buys less and less extra happiness in a law of diminishing returns.

What does maximise the amount of happiness that you get from the extra income is spending the money in the right way.

Some people think to be happier means that they are one up on their neighbours. So they will buy a flashier car, a bigger TV, etc. They think that they need to buy these things to make them happier. They might do, for a short while. All they are doing is squandering.

The actual way to maximise happiness from your income has been studied and some basic rules worked out.

1. Buy experiences instead of things. Objects wear out, get dirty, get forgotten. Experiences are memories and memories is what defines you. You can always remember experiences and good ones will get better as times pass. So take that holiday to Universal Studies or take that cruise along Alaska’s coast.
2. Help others instead of yourself. This is the real Big Society point. We are social creatures and have evolved in small tribes. Even in big cities people tend to group together in small numbers, though with the Internet they don’t need to be physically close-by. Buy spending money on others you help create deeper connections with them. This doesn’t necessarily mean charity, it could mean helping out with the local under 12 football team.
3. Buy many small pleasures instead of few big ones. Us humans can adapt to change very easily. That’s why we can cope with the huge range of temperatures and environments in the world and have spread across the Earth’s surface. So don’t be afraid to keep changing your environment. Be it moving the furniture around every year to buying lots of little things. So rather than buy the big huge super duper hi fi-TV combo package, buy it in pieces. So you spread out the pleasure and experience of trying something new. Get the TV and enjoy it. When the pleasure has waned then go and get the speakers to enjoy the audio experience. Frequency is better than intensity.
4. Buy less insurance. As mentioned above, we adapt quickly. Not just to positive changes, but also to negative changes. It’s a natural feeling to be risk averse. That’s why when the media report a single case of child abduction, the whole country battens down the hatches and children aren’t allowed to play in the street. Each time the MSM report such occurrences the feeling of unease builds up and there comes a time when authorities are forced to set in place rules to stop children playing in the street because of such perceived fears. However, as has been shown by Lenore Skenazy of Free Range Kids, if you actually take children out and let them play without parent’s hovering over them, the parents quickly realise that their fears were totally out of step with reality. So don’t feel you have to buy every single piece of insurance – just in case. In reality the problems aren’t as big as you would fear. Do buy insurance to cover extreme financial loss such as house and car, but don’t buy the extended warranties.
5. Pay now and consume later. Don’t consume now and pay later. We are impulsive creatures. We like the immediate gratification. But that also leads to problems when you buy the products you can’t really afford. But the experience of buying the product NOW quickly wanes. Which is why you get the shopaholics who keep buying because the experience is so short. To maximise the experience, take your time about making the decision over whether to buy something or not. And if you do decide to buy, savour the experience as you wait for it to be delivered to your door. When will it arrive, today, tomorrow, will I like it, will it fit, will it be the right colour.
6. Think about what you’re not thinking about. So you’ve decided to buy such and such a product. Think about it. How will you use it. Where will you use it. How will it fit into your life. Will you have to adapt to using it or will it just slot in naturally. This fits in with item 5 above in terms of savouring and prolonging the experience of buying.
7. Beware of comparison shopping. So you’ve decided to buy such and such a product. Don’t think too much about it though. Don’t compare products for the smallest details. Marketing people know that we can’t resist having the extra little detail to be one better than the Jones’. But in reality such minor details never make any difference to actually enjoying the product. So a food mixer might more attachments than another, but will you actually use all those extra attachments. A set of kitchen knives might have a dozen different types, but chefs only use about three really good ones.
8. Follow the herd instead of your head. Now this might sound counter-intuitive, but use everyone else’s experiences to fine tune your decisions. Individually we are very bad at making decisions as we are easily swayed by personal views and opinions. We are also abysmal at predicting how much we’ll enjoy something. So if you actually thought about an experience such as sky diving you would think of all the risks and problems. But if you ask anyone who’s taken a jump about their experience you will never hear a bad word said about it. Once they start talking about it, they won’t stop!

Follow these eight lessons and you will get the most happiness for the given amount of money you spend. It’s a scientifically proven fact.

SBML

1
Mudplugger
May 13, 2012 at 09:41

I take Item 4, ‘Buy Less Insurance’, even further. I don’t buy any that isn’t legally compulsory.

The logic is that, by banking all the ‘premiums’ which I would otherwise spend, I have a ‘personal disaster fund’ available, on tap, to be used at my own discretion, without paperwork, without arguments with loss adjusters and there’s no extra premium for claims, no enforced excessive security and, more attractively, no cash of mine going to fund fancy office-blocks and expense accounts for the cynical sleaze-balls of that industry. After a few decades disaster-free, you’d be amazed how big that fund is. (Another tip – invest it in Premium Bonds and you might even win a million with it, yet all your cash is available within a week).

I don’t even insure my property, as it is not in a flood-zone and not occupied by people who come in rat-arsed at midnight Friday and then put the chip-pan on the gas before falling asleep – the major causes of most catastrophic property claims.

Rather like religions, the insurance industry is predicated on creating and stoking irrational fears, then liberating money from you to address them, taking a healthy slice for itself in the process.

Stay as far away from them as you possibly can and greater personal happiness is guaranteed – not only do you avoid all the worry they’ve sponsored, you’ve even kept some extra cash to boot.

2
Pompey Cowboy
May 13, 2012 at 17:58

So what happens when a wiring fault burns your house to the ground, or your house gets hit by lightning, or a tornado just lifts your roof off?
You have to be an idiot not to insure your property and probably socially iresponsible, as you will cry if your house were to be destroyed and no insurance company could pick up the bill.

3
Mudplugger
May 13, 2012 at 21:30

Check the statistics – more likely to win the lottery. They’ve obviously go to you with their ‘fear propaganda’ – they’re very good at it.

I know of no property within 50 miles ever being destroyed by lightning or tornado or anything similar – wiring fault is always possible, but very remote with well-maintained and specified circuitry – it’s only usually the old and/or overloaded which cause problems.

And anyway, my ‘fund’ would easily cover rebuilding cost ( I don’t need to buy the land again), along with replacing the largely-worn contents. No haggling, no aggro, no ‘betterment penalties’ – just taking smart responsibility for my own situation. Who’s the idiot ?

4
Châtelaine
May 13, 2012 at 22:22

A year or so after I bought my property in France, one of my hands set [accidental?] fire on an annex. They paid for everything I could document of being lost, yet it was less than the first years of premiums for the insurance. I’ve meanwhile continued to pay house insurance into the 20,000′s yet still would not be wanting to take that risk again …

5
Woodsy42
May 14, 2012 at 01:14

I don’t buy insurance for most things. Like you I have a ‘disaster fund’ for most eventualities and insurance is sharing the costs with people less careful and less practical than me so costs way over the probably loss. The house however is the exception. Although it’s very unlikely to happen a total loss through fire or burst pipe would be devastating and I would be wiped out, so that does get insured.

6
blingperson
May 13, 2012 at 11:18

“If you ask anyone who’s taken a jump about their experience you will never hear a bad word said about it.”

You never hear from the ones for whom it all went wrong

7
Mark
May 13, 2012 at 14:00

Thanks Anna, interesting.

Blingperson? Very good point