Secrets of a Psychologist: How to Train Your Brain to Make Smarter Money Moves

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train brain money smartThey say money can’t buy happiness, but who hasn’t pictured how wonderful life could be if you bought that must-have tech gadget or new set of wheels?

Of course, you’ve probably also experienced the letdown that accompanies the realization that such purchases don’t actually provide the lasting euphoria you’d imagined.

And, somehow, even though we know saving money will make us happier in the long run—by helping us afford that down payment on a home or ensuring a more secure retirement—it’s much more difficult to psych ourselves up to save instead of splurge.

In other words, the human mind doesn’t always work in our best interests when it comes to spending decisions. But the good news is that scientists are trying to tackle the problem—and uncover how we can retrain our brains to make better choices.

Scientists like Dr. Ryan T. Howell, an assistant professor of psychology at San Francisco State University and the cofounder of Beyond the Purchase, a website dedicated to studying the psychology behind spending. Each and every day at the university, Howell’s Personality and Well-Being Lab aims to answer one crucial question: “Can money make us happy if we spend it on the right purchase?”

Curious to hear the results, we tapped Howell to share with us the main takeaways from his research—and divulge some of his favorite psychological tricks for making smarter money moves.

LearnVest: What are the key traits of people who are happy with their spending decisions?

Dr. Ryan T. Howell: To maximize happiness, the very first thing you need to do is get out of credit card debt. You may get some momentary joy from making a purchase you really want, but the financial stress of debt will make you worse off—it’s pretty much the worst thing in the world for your happiness.

Second, we found that happy people follow a particular pattern when spending money after their essentials are paid for: They save or invest about 25% of it. They take about 12% and earmark it for charities, religious organizations or gifts for other people. And they spend about 40% on meaningful life experiences. Those are the three most salient characteristics of happy spenders.

RELATED: The One-Number Strategy: A New Approach to Budgeting

  • mznatural

    I really enjoyed this article. Dr. Howell did a great job of going deeper and explaining more than the usual information I’m used to hearing about the psychology of money i.e., actually getting out of credit card debt will bring the most happiness prior to any purchases.

  • mara

    That is so true about the tracking! – since I started doing that I really think about the purchases I make and the impulse buying is like 80% reduced

  • http://theleakypen.tumblr.com theleakypen

    This is a great way to think about spending & saving. I’m really interested in this breakdown of post-essentials spending: “They save or invest about 25% of it. They take about 12% and earmark it for charities, religious organizations or gifts for other people. And they spend about 40% on meaningful life experiences. Those are the three most salient characteristics of happy spenders.”

    Might just apply it to myself in the future.

    • Jody Constantine

      oops…. missed the post essential part of the formula!

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  • Erica

    This could be a silly question, but after the 25% – 12% – 40% spending laid out in this approach, what does the remaining 23% go towards? Essential expenses? That remaining 23% seems like a big chunk of one’s budget that could very well also impact their happiness.