What To Do With All Your Money ;-)

Have you ever wondered what you should do with all that money sitting in your bank account? No?

Well, then you're like me and not exactly the definition of wealthy! But does that make us less happy than our affluent fellow human beings? Money doesn't buy happiness, right? As it turns out, it's not quite that simple.

Income and happiness are related, but not necessarily the way we would expect them to be (or not to be). In a recent piece by Elizabeth Dunn entitled Don't Indulge. Be Happy. the author cites some interesting poll numbers regarding the connection of your money in the bank and your overall happiness. (Disclaimer: these numbers are from the US, so if you're absolutely convinced that people from your country are different, please mention that in the comments section below.) According to this survey, the American's happiness increases up to an annual income of around $75,000. After that, it doesn't really make much of a difference if you're able to reach the 100,000 or the 1 million mark. Your level of happiness will not change much. What does matter though, is what you do with the money you earn. And that's where you and I come in (unless you don't make any money at all, at which point I would give you permission to stop reading right about now...).

Here's what Dunn has to say on the subject of what to do with your money:

"We usually think of having more money as allowing us to buy more and more of the stuff we like for ourselves, from bigger houses to fancier cars to better wine to more finely pixilated televisions. But these typical spending tendencies - buying more, and buying for ourselves - are ineffective at turning money into happiness."

Instead we should learn to practice what she calls "underindulgence" - indulging a little less than you usually do. Definitely sounds like a healthy idea, but why would that actually increase my happiness? Glad you asked. Because this is where an economic theory called "diminishing marginal utility" comes in. Never heard of it? Let me explain.

When you order a pizza at a restaurant, the first slice is always going to be the best. The crunchy crust, the melted cheese, your favorite topping... yup, it's delicious. The second slice will still be very good, but maybe not quite as tasty as the first one. And the more slices you eat, the less pleasure your taste buds will experience. If you're not careful, you might actually start feeling sick after the tenth slice! That's diminishing marginal utility - the more you consume something, the less pleasure you will be able to derive from it. Which in turn means that if you "underindulge" - stop at the 4th slice instead of the 8th as you usually do - you can increase your level of happiness (at least when it comes to eating pizza ;-) ). Underindulging can also mean that you refrain from eating __________ (insert your favorite food here) for a month, so that when you finally eat it again, it will taste absolutely amazing! Try it, it works.

And if underindulging doesn't make you happy enough, there's something even better that you can try out some time: spend some of your money - on others. No better way to find happiness than that.

You may never reach the magical limit of $75,000. But no matter how much money you have in your bank account, just remember that it all depends on what you do with it. Or in the words of Elizabeth Dunn:

"...rather than focusing on how much we've got in our bowl, we should think more carefully about what we do with what we've got - which might mean indulging less, and may even mean giving others the opportunity to indulge instead."

Why don't you give someone else the opportunity to indulge today? You won't regret it...