Having money may bring you more happiness than spending it. There's a certain peace of mind that comes from having cash in the bank, according to a research report published by the American Psychological Association.
"What makes people happy is simply knowing the money is in the bank, not necessarily spending it," wrote the study's authors. "Once it's spent, it's no longer reflected in their bank balance -- and no longer contributes to happiness."
Of course, that's not to say people don't get pleasure from buying things, purchasing experiences, traveling, or spending their money in other ways. MaxMyInterest CEO Gary Zimmerman answered question from The Motley Fool via email on the subject of how much money it takes to make people happy.
How much cash do you need to be happy?
"It's not a specific number, but studies show that people are happier when their bank balances go up," Zimmerman wrote. "This is a measure of how much cash you're holding, not your income or net worth, so it shows that people value liquidity and personal flexibility highly."
Think of happiness being more about what money might be used for rather than how you actually use it. If you buy a big-screen TV, for example, that may bring you joy, but it doesn't buy you freedom
"Imagine being stuck in a job you don't love, living paycheck to paycheck. You have no flexibility, no hope of quitting to do something different," Zimmerman wrote. "Now imagine working in that same job, with a year's worth of salary sitting in cash. You might not quit, but you could. It's that feeling of flexibility, of not being trapped, that is so immensely valuable. Holding cash buys you that flexibility."
Of course, there's a balance between having cash on hand and spending money. Zimmerman recommends one area where spending makes more sense.
"Behavioral psychology research tells us that people are happier when they spend money on experiences rather than on objects, especially when the experience brings you closer to people you care about and creates unique memories," he wrote.
He suggest vacations, concerts, or dinner at a well-regarded restaurant with people you love as smart options. "If you're buying things that you can live without -- another pair of shoes you don't really need, or really anything you can get at a mall -- you might want to skip it if you feel it's too expensive," Zimmerman added.
Research also shows that spending money to avoid unpleasant tasks can be money well spent. If, for example, you pay someone to clean your house and that lets you take your kids to the park, that may be an "investment" that makes you happy.
"Consider also the time value of money. $100 spent today could mean $180 less to spend 20 years from now," Zimmerman added. "That same principle of compounding also means that if you're in your 20s or 30s, the most important thing you can do is contribute to your retirement savings plan or a 529 Plan for your children's education. Deferring consumption today buys you a lot more consumption tomorrow."
Consider your needs
Before you spend any money on something that's non-essential, consider how not having that cash will make you feel. Will you enjoy what you're buying more than the sense of contentment having more money in the bank will bring you? If the answer isn't clear, then it might make sense to delay the purchase.
Step back and really consider life with or without whatever you're planning on buying. Only pull the trigger to buy when you have clarity and fully believe that spending the money will be worth it, in both a technical and an emotional sense.
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