Whew! I finished our taxes and sent them in on time. Unfortunately, we owed the government over $3,000 because I didn’t pay enough estimated taxes. I also contributed $5,000 to my i401k for 2021. That reduced our tax liability a bit. Unfortunately, these big payments reduced our cash savings to an uncomfortable level. I usually try to keep around 2-3x our monthly expenses in our bank accounts. Also, we plan to travel a lot this summer so we need to save up for that too. We’ll have to watch our spending over the next few months.
What about you? Did you have to pay the IRS or did you get a refund? Many taxpayers get a refund and it’s nice. They can use the extra money to buy a few nice things or splurge on fun experiences. Lately, I hear that spending on experience is a better value than spending on things. Is that really true?
*Originally written in 2016. Updated 2022.
Spend On Experience
Happiness researchers have shown that spending money on experiences gives you more happiness than spending on material possessions. Things don’t make you happy or unhappy in the long term because we adapt to them. New things are great for a while then they lose their luster. It’s hard to impress humans for long, according to research…
On the other hand, we anticipate experiences much more than things. In 2015, we went to Costa Rica for a vacation and I was looking forward to it for a long time. I spent a lot of time figuring out how to get the cheapest tickets. (We signed up for a credit card and accumulated enough points for free tickets!) I did a lot of research on Costa Rica and planned our itinerary. We had a great time on the trip and we’ll go back someday.
Costa Rica was fun, but we could have used the money differently. We could have spent the money on a new entertainment system instead. I could replace our aging 480p TV with a big screen 1080p HDTV. Also, it’d be great to get rid of our cheap Walmart TV stand and get a much nicer entertainment center. While we’re at it, I’d get a Blu-ray player to improve our movie viewing experience and an Xbox. The problem is that these things will get old. In a few years, I’d be lusting after the latest and greatest gadgets.
Studies found that when people look back at their purchases, they realize that experiences actually provide longer-lasting value. We appreciate old experiences much more than old material possessions.
*Update – I got a new TV when we moved into our duplex three years ago. The TV is awesome and I still love it. We also got an Xbox One. It plays Blu-ray discs so it serves two purposes. I enjoyed playing games on it when I first got it, but I haven’t played much lately. RB40Jr uses it every day, though. We still have our old Walmart TV stand. Spending on stuff isn’t bad as long as you get your money’s worth. We use our TV frequently so it was a good buy.
Experiences Fade Too
The Costa Rica trip was a lot of fun. However, it was recent and I remember a lot of it. My memory is terrible and the recollection of this trip will fade in a few years. In 2009, we went to Japan and it was an awesome trip. I remember the food was great and we enjoyed the hot springs. We also appreciated the historical castles and temples. I don’t remember much else, though. It’s a good thing we took a lot of photographs. I’ve been to Europe, Australia, New Zealand, China, Thailand, Belize, Jamaica, and many other countries. They were all great, but the memory of those trips are all fading.
Personally, I don’t think back on previous trips often. Is experience really a better buy if you don’t think about it much? I focus on the present and the future; I rarely look back. I don’t think magical moments and memories grow in value over time because I’m so forgetful. That’s just me, though. Mrs. RB40 has a much better memory than I do. She remembers things from her kindergarten days. That’s amazing! She still recalls details from our trips to Hawaii, Jamaica, and Belize. Purchasing experiences is the right model for her.
Memory may fade
Spending on experience is great, but spending on nice things is okay too. For me, both categories lose their luster over time. However, past experiences form who you are. If you don’t spend on experience, you won’t grow as a person. The memory of my trips may have faded, but they are all a part of who I am today. I’d be a different person if I didn’t travel to all those interesting places. On the other hand, things are just temporary. Once they get old, you’ll want something newer and nicer. My HDTV is nice now, but in 5 years, there would be a much nicer model. Anyway, I choose to prioritize experiences over things. Fortunately, we are comfortable financially now and we can have a bit of both.
Do you choose experience over material things when it comes to spending money?
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Source: Retire By 40
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