Three rules of thumb that will save you a lot of money

Save up and be a happy spender

Why is it that every month you're short of money? Obviously there are too many days in a month. The good news is you're not the only one. Many households in the Netherlands have trouble to making ends meet. Sometimes due to unemployment, expensive housing, or debts. But more often simply because we spend too much. With these three rules of thumb you can become a happy spender.

Why do we spend more than we have? Professor Philip Hans Franses, Professor of Applied Econometrics and Professor of Marketing Research at Erasmus School of Economics, explains: it's because we find it difficult to make sensible choices.  A 'free' phone with free roaming, a credit card with more credit, a pay scheme for a new computer. And the joy of buying now and paying later!

Well, for a start, that phone is obviously not free. Costs are simply hidden in the call bundle. The negative balance on the credit card must be complemented with interest.

Behavioural economics teaches us (among other things) how to protect ourselves, and how we can help people out. By explaining what a product really does for example. Not saying: ‘borrowing money costs money’ but instead saying how much.

A recent and very readable book by Elizabeth Dunn and Michael Norton (Happy Money: The Science of Spending Happier) gives some rules of thumb for happy spending. Three of these rules are quite simple and also easy to remember. You will be happier if you spend your money as follows:

1. Experience

Spend money on an experience, and not something material. An experience, like a great dinner, gives more happiness than a new pair of shoes.

2. Save

Spend money that you have saved, and pay in advance. Don't borrow money or pay in installments.

3. Share

Share an experience with others. A concert that you're going to with a friend gives you more happiness. That’s money for two tickets well spent.

And remember: many money worries start with yourself. And you are the one that can really do something about it. There are financial services that can allow you to get you a pair of shoes, clothing, or housing where you pay afterwards, sometimes a lot more because of the interest. I can only say: it will not make you happier!


Text: Manon Sikkel Daelmans/ Philip Hans Franses


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