What is actually worth spending money on? What research show

What is actually worth paying for? For example, if you had S$500 to spend today, do you think it would be better spent on:

• a new gadget?
• a weekend getaway?
• a few sessions with a cleaner for your home?
• or simply left in your savings account?

For decades, psychologists, economists and financial experts have studied how money affects our happiness and well-being. Most of their findings suggest the best purchases we can make are not necessarily the cheapest, most practical or even the most memorable.

Instead, they should be what can make our lives better, for a longer time.

First, can money actually buy happiness?

The familiar saying goes: “money cannot buy happiness”. That may not be entirely true.

In a 2023 study, psychologists in the US examined the relationship between income and emotional well-being. They found:

• For most people, happiness increased when income rose.
• But for participants who reported the lowest levels of emotional well-being, their happiness only rose with income up to about US$100,000 (S$128,096) annually before levelling off.
• Some high earners were among the least happy participants.
• The researchers also suggested past US$100,000, extra income did little to ease problems such as grief, heartbreak or depression.

In other words, more money tends to help. But how you spend it may matter just as much.

In an influential 2011 paper, psychologists Elizabeth Dunn, Daniel Gilbert and Timothy Wilson argued people often failed to maximise the happiness with the money they already had.

• Their research suggested certain spending decisions tended to bring more satisfaction than others.
• And most had little to do with buying expensive things.

Drawing on this evidence, they and other researchers recommended:

1. Spend on experiences that become lasting memories

Think about a holiday you took five years ago. You may have forgotten how much the flights cost, but you probably remember:

• The food.
• Places you visited.
• The people who were there with you.

Now think about the phone you bought around the same time. Does it bring back the same feelings?

In a 2003 study, psychologists found people generally reported greater happiness from experiences than material purchases. Several possible reasons included:

• Experiences become part of our personal stories. A family holiday, concert or memorable meal can become something we talk about and remember years later.
• Experiences bring people together. Many involve family, friends and shared activities, strengthening relationships rather than simply adding to our possessions.
• Memories can improve with time. A holiday disrupted by rain might eventually become a funny family story. A disappointing purchase is less likely to improve in our memories.

But, this does not mean possessions are always poor value compared to experiences.

A 2015 study found possessions that enabled activities, such as sports equipment or musical instruments, could deliver happiness comparable to experiences.

• For instance, a S$300 tennis racket used every weekend may bring more enjoyment than a S$1,000 weekend getaway.

Meanwhile, another study done in 2018 discovered the happiness advantage from experiences was only stronger when people had greater financial resources.

• For those with less money, useful material purchases arguably bring equal or greater happiness compared to experiences.
• Example: a new refrigerator, which replaces one that constantly breaks down, may significantly improve your life more than a holiday.

The lesson: Spend on experiences you genuinely value, but do not dismiss possessions that make those experiences possible or solve real problems.

2. Spend money to buy back your time

Time is one resource we cannot earn back. Yet, many of us spend hours doing things we dislike just because it might save us a little money.

In a 2017 study, researchers from Harvard Business School surveyed more than 6,000 adults across four countries.

• People who spent money on time-saving services, such as house cleaning or meal preparation, often reported greater life satisfaction.
• The researchers then conducted an experiment involving 60 working adults in Canada.
• Each participant received C$40 (S$35.88) on two different weekends. On one weekend, they had to spend it on something that saved time. On the other, they had to buy a material item.
• The result? Participants reported less time-related stress and a better mood after making the time-saving purchase.

Then, there is the commuting paradox, identified by economists in Germany. Their study found:

• People with longer commutes from their home to the workplace consistently reported lower well-being.
• Even with more financial benefits (like a cheaper house or more salary), that did not appear to compensate for the burden of longer travel.
• This suggests if you had to choose between a cheaper home further from work and a more expensive one nearby, your financial calculations should also factor in the value of your time.

The lesson: Buying time is most worthwhile when it allows you to do something that genuinely improves your life. What could this look like in Singapore?

• Paying for occasional home cleaning so your weekends are less consumed by housework.
• Ordering groceries online instead of making a separate supermarket trip.
• Taking a taxi home occasionally to spend more time with your children.
• Choosing a direct flight over a long layover when travelling with your family.

3. Spend money on the people who matter to you

Another surprising finding from happiness-related research is spending money on someone else can sometimes make you happier than spending it on yourself.

In a 2008 study, researchers examined the relationship between generosity and happiness.

• Participants were given either US$5 or US$20 to spend on for themselves or someone else.
• Those who spent the money on others reported greater happiness at the end of the day.

Later research also broadly supported the connection, but discovered personal happiness was stronger when the giving is voluntary, personally meaningful and helps people feel connected.

• For instance, a 2020 study showed giving was generally more rewarding to individuals when they saw the difference they made to the recipients’ lives.
• The findings also aligned with research from the Harvard Study of Adult Development, which highlighted the importance of close, supportive relationships to long-term well-being.

The implication is simple: spending which helps you maintain meaningful relationships can be more valuable than spending designed to impress people you barely know.

This could mean treating your parents to a meal, buying someone a thoughtful gift or helping a loved one through a difficult period.

4. Spend on your health, especially on things you will actually use or improve your health

It is easy to justify spending more on your health. But not all health-related purchases are automatically good investments.

Take these two individuals for example:

• Person A signs up for an expensive annual gym membership but goes only once a month.
• Person B pays for weekly swimming sessions and looks forward to them.
• Person B arguably gets more value and benefits from their spending, even if they pay less.

Expensive health-related spending like wellness products, gym memberships or fitness gadgets should be measured against whether they significantly improve your health and your usage.

Meanwhile, some worthwhile health spending can also be relatively inexpensive.

• Under Singapore's Healthier SG Screening programme, eligible Singapore Citizens can receive nationally recommended screenings at participating CHAS GP clinics for S$5 or less (sometimes even free).
• Some insurance companies also offer cheaper health screenings or GP consultation fees with partner clinics.
• Other potentially worthwhile purchases may include supportive footwear, appropriate exercise equipment and preventive dental care.

A higher price does not guarantee better health outcomes. Prioritise proven preventive care and purchases that help you maintain healthy habits, rather than products promising dramatic results.

5. Spend on skills and education to create more opportunities

Some purchases are valuable because of what they enable you to do in future.

• A professional certification, technical course or new qualification could improve your career prospects or help you adapt when your industry changes.
• Learning a language, cooking or playing an instrument can also make your life more fulfilling.

Before paying for a course, ask whether you will use the skill, whether the training is relevant to your goals and whether subsidised or employer-supported alternatives are available.

A costly course is not necessarily a good investment if you never complete it or apply what you learn.

6. Spend more on things that improve your everyday life

In their 2011 paper, Dunn, Gilbert and Wilson argued people often overlooked how purchases can affect the ordinary details of daily life.

Most of our time is actually spent on ordinary routines like sleeping, working and cooking rather than on extraordinary experiences; and buying something that improves one of these activities may actually provide greater value.

One way to evaluate such purchases is through cost per use. Consider two pairs of shoes:

• Pair A: S$300, worn 200 times a year for three years. That works out to S$0.50 per wear.
• Pair B: S$120, worn only twice. That works out to S$60 per wear.

The more expensive pair is considerably cheaper when measured by use.

The same thinking can apply to work equipment, kitchen appliances and furniture. Comfort, durability and suitability matter alongside price.

And not every worthwhile purchase needs to be expensive.

• Researchers have suggested that numerous small, varied pleasures may bring more happiness than a few large purchases, partly because we quickly become accustomed to improvements in our circumstances.
• A weekly kopi with a friend, a favourite hawker meal or a regular family outing might bring enjoyment far beyond its price.

7. Spend on what genuinely matters to you

Here is perhaps the most important finding of all: There may be no universal list of purchases that makes everyone happier.

In a 2016 study, researchers in the US analysed more than 76,000 banking transactions.

• They found that people whose purchases aligned more closely with their personalities tended to report greater life satisfaction.
• Someone who loves meeting people might enjoy spending their money on social gatherings and shared activities.
• Someone who prefers quiet evenings could get more pleasure from books, gardening or improving their home.

As such, the best way to spend your money may depend less on what you buy and more on how well it fits the life you want.

What is usually not worth spending money on?

If some purchases bring lasting satisfaction, why do others disappoint?

One explanation comes from the concept of hedonic adaptation: our tendency to become accustomed to improvements in our circumstances.

A new phone, car or luxury item may initially feel exciting. Eventually, it becomes part of everyday life, and the temptation to buy something better returns.

Social comparison also plays a role.

• As early as 1899, economist and social thinker Thorstein Veblen described conspicuous consumption: buying things partly to demonstrate wealth or social standing.
• More than a century later, the idea remains relevant to luxury purchases, social media and the pressure to keep up with others.

This does not mean expensive purchases are wrong. What matters is whether they bring genuine personal enjoyment or are bought mainly to impress others.

Other spending habits worth questioning include:

• Frequent upgrades: Replacing functional gadgets simply because newer models exist.
• Forgotten subscriptions: Paying for services you rarely use.
• Impulse purchases during sales: Buying something because it is discounted rather than because you need or genuinely want it.
• Unnecessary extended warranties: Paying to cover relatively small losses you could comfortably afford yourself.
• High-interest debt: Allowing interest charges to substantially increase the cost of purchases.

The aim is not to avoid every indulgence, but to recognise when a purchase is unlikely to deliver the value you expect.

Do not forget the spending that protects your future

There is one important qualification to all the research: Sometimes, the best use of your money is not what makes you happiest today, but what prevents financial difficulties tomorrow.

An emergency fund, adequate insurance protection and regular retirement savings may not be exciting, but they can provide financial security and greater peace of mind.

Singapore's Basic Financial Planning Guide provides several useful rules of thumb:

• Emergency savings: Set aside at least three to six months of expenses to help manage unexpected costs or income disruptions.
• Insurance protection: As broad starting points, consider death and total permanent disability cover of approximately nine times annual income, and critical illness cover of four times annual income. The guide also recommends spending at most 15% of take-home pay on insurance protection.
• Retirement and other goals: Aim to invest at least 10% of take-home pay towards retirement and other financial goals, taking into account your circumstances and risk tolerance.

These are guidelines, not universal targets. Your needs will still depend on your age, dependants, existing protection and financial commitments.

For example, before buying additional insurance, review what you already have, including national schemes such as MediShield Life, CareShield Life and the Dependants' Protection Scheme.

Financial security changes how you experience spending. A holiday paid for with money you can comfortably afford may feel very different from one that leaves you worried about next month's bills.

Five questions to ask before spending money

There is no perfect formula for deciding what deserves your money. But before making a significant purchase, consider these five questions.

1. Will this make my everyday life better? Will it solve a problem, save time or improve something you do regularly?
2. Will I still value it six months from now? Think beyond the initial excitement and consider how often you will use or enjoy it.
3. Am I buying it for myself or to impress others? Would you still want it if nobody else knew about the purchase?
4. What am I giving up to afford it? That S$1,000 could fund a holiday, lessons or part of your emergency savings. Which matters most to you?
5. Can I afford it without compromising more important goals? Enjoying money today matters, but so does protecting your financial future.

You do not need every purchase to pass all five questions. Sometimes, a small treat is simply a treat. The aim is to make more of your spending intentional rather than automatic.

The bottom line: Spend on the life you actually want

There is no single purchase guaranteed to make everyone happier. But decades of research point towards a common theme.

Money tends to deliver greater value when it provides security, control over our time, meaningful connections and opportunities to enjoy everyday life.

Sometimes that means spending more. Others, it means spending less. And sometimes it means saving the money instead.

Ultimately, being good with money is not just about accumulating as much of it as possible.

It is also about using what you have to build a life you genuinely value.

If you would like to understand how much to set aside for savings, retirement or insurance protection, consider speaking to a financial representative who can help you assess your financial circumstances and goals.

Written by: Great Eastern Lifepedia team

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