Everyone loves a windfall. If you’ll be getting a bonus this month, you might assume that the extra cash should deliver a nice boost in holiday cheer. Yet many people pocketing bonuses find themselves not much happier in January than they were in December. Why is that? Money and happiness experts note that people make two mistakes.
First, people don’t use their bonuses mindfully. The cash goes into the general fund and trickles out to pay for general things. Worst case, you become dependent on a bonus for basic expenses, a reality that makes switching jobs or weathering a bad year difficult. “If people would put it aside and say ‘this is my extra money’ and use it separately, people would be more deliberate in how they spend it and more likely to spend it in happier ways,” says Cassie Mogilner, a marketing professor who studies time, money, and happiness at the University of Pennsylvania’s Wharton School.
But setting up a separate mental account won’t, by itself, buy happiness if you use the bonus on things that don’t boost well-being. If you’ve already got a relatively new and nice car, the thrill of a newer and more expensive one will wear off pretty quickly.
So what’s a better idea? Use your bonus on one of these categories that research is finding does correlate with happiness.
Travel. Wine-tasting courses. A day at an amusement park. Compared with physical possessions, experiences tend to make people happier because “experiences say more about who you are. They become more part of your personal narrative,” says Mogilner.
They pack a triple happiness whammy as you anticipate your fun beforehand, enjoy your experience, and then savor the memory afterwards. People tend to enjoy remembering a trip to Paris more than they enjoy thinking about their sofa. And beyond this, experiences are “harder to compare against alternatives,” says Mogilner. “When you go to a nice dinner, you’re less likely to think about other dinners people are having than you could have had.” Whereas someone else will always have a nicer car, nicer furniture, a nicer sound system, and so forth. Comparison doesn’t lead to happiness. Enjoying yourself does.
For a study on money and happiness, Elizabeth Dunn, Lara Aknin, and Michael Norton measured the moods of people before and after receiving profit-sharing bonuses. The only significant predictor of happiness at the second point was how much people had spent in the “pro-social” category: gifts and acts that bring people closer. Humans are social creatures, and feeling that we are loved and that we are taking care of people we love is closely tied to feelings of well being.
So how do you make that work for you? Manisha Thakor, owner of MoneyZen Wealth Management, notes that among her clients, people who derive the most enjoyment from bonuses tend to do things for extended family. “I’m seeing very high end individuals take the entire family to Kenya on safari,” she says. “In the medium real world, people will take the whole family on a cruise. And in the real real world, somebody rents a home and then invites all family members to come to this home in a beautiful place—they only have to get themselves there. Sometimes they’ll hire a chef to take care of all the cooking, so all the family members can just focus on being together.”
If we’re talking a rather large bonus, Thakor notes that her clients get “enormous joy” from setting up college plans for nieces and nephews (presuming you don't have children or your own children’s college plans are well funded). Most larger towns also have community foundations that can help you set up donor advised funds. You put in a lump sum, and can fund a few programs in perpetuity, with the community foundation handling the administration so you don’t have to. “It’s charitable giving, but in a way that’s legacy building,” she says.
We all have 24 hours a day and 168 hours in a week. All the money in the world can’t buy a second more. However, money can help buy time back from things you don’t want to do so you can spend more time on things you enjoy. Which chores do you dislike? Mogilner suggests using your bonus to outsource them.
But then instead of viewing the bill to the cleaning service as a “boring expense,” she says, “view it as buying yourself an hour a week—an open hour to spend in a happy way.”
Consciously choose to use that time for a hobby, reading, going out with friends. If you’ve got kids, you might use some of the bonus money to fly in grandparents to take care of them so you and your spouse can take a long weekend away.
Financial independence is a great feeling. You can transition into work you do solely because you find it fascinating. Or you could retire earlier if you want. If saving your bonus can move you closer to achieving that goal, watching your net worth rise can buy happiness.
[Image: Flickr user Lady May Pamintuan]