The Smartest Way to Spend Your Tax Refund (According To Science)

Just got your tax refund? Don't head to the mall just yet. Science says money can, in fact, buy happiness, it just depends on how you spend it.

The-Smartest-Way-To-Spend-Your-Tax-Refund-(According-To-Science)cabania/ShutterstockIn 2016, the average American received a tax refund of about $2,860, and the IRS predicts similar numbers this year. There’s no question about what a financial planner would tell you to do with such a sudden windfall: invest 90% of it toward paying down your debts, bolstering an emergency expense fund, and saving for retirement (in that order). This is all sound advice (especially if you, like the average American household, have $16,748 in credit card debt). But that still leaves 10%, or roughly $300, for selfish splurging, and we’d like to remind you that money actually CAN buy you happiness. Here, according to the latest research, are the four smartest ways to invest in joy.

4. Recognize it as a treat. Tax refunds, like birthdays and polite relatives, come but once a year. By the same token, if you use some of your money to buy something that you wouldn’t normally splurge on, it will bring you more enjoyment than a routine purchase. On a cognitive level, it’s sort of like the difference between watching your favorite TV show live as it airs week-by-week versus binge-watching every episode at once. Research shows that taking breaks between episodes (as well as, miraculously, taking commercial breaks during an episode) notably increases the enjoyment of watching the show. In other words, there can be too much of a good thing—so don’t splurge on something you could buy any day of the week.

3. Buy experiences, not stuff. There’s an inherent thrill to shopping, but for most purchases the emotional high tends to ware off pretty quickly. One case where this is not true: buying experiences—out of town trips, concert tickets, spa days, notches on your bucket list and so on. The same way investing in a savings account compounds your earnings over time, study after study shows that investing in an experience compounds your happiness upon future reflection. In one survey, 57% of Americans reported that an experiential purchase made them happier than a material purchases, improving their mood when thinking about it and calling it “money well spent.”

2. Give yourself something to look forward to. As we noted above, delayed gratification can be your friend, and thinking about something fun can be as rewarding as actually doing it.  Let’s say you used your splurge fund to book a weekend trip for three months from now. Not only do you get the enjoyment of experiencing the trip itself (plus the bonus joy of looking back on it after), but you also get three months of anticipatory planning. Thanks to a phenomenon that behavioral researchers call the “drool factor,”  delayed gratification gives you time to build up positive expectations, increasing your overall enjoyment.

1. Spend it on someone you love. This point may be the most important: people who spend money on others are measurably happier than people who spend on themselves. It feels really good to give, and if you give to someone extremely dear to your heart—say, your kid, partner, or parents—then your fleeting happiness takes on a new life as something else: meaning.

An exceptional example that ties all of these ideas together is the viral story of a single working mother who posted the following explanation of how she chose to spend her $5,600 refund: “Instead of buying my kids the latest Jordans or fancy electronics I paid my rent for the YEAR. I’m a single mom and I do it all buy myself on a minimum wage job. I know that a roof over my kids head is what’s important. My kids don’t want for anything because my priorities are straight. And this also means I will have that extra 450 a month to do things with my kids.”

By investing in her kids’ well-being, this mom shows us everything that matters about buying happiness. Experiences (in this case, the day-to-day experience of housing security) are more important than material goods, spending on others beats spending on the self, rare experiences (paying a year’s rent all at once) reap greater rewards, and the joy of expectation (“that extra 450 a month”) pays dividends. Happy spending.

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