How to Spend Your Money (or Why Travel is a Good Use of Money)

(I realize that this post is mostly just preaching to the choir, but I have a future point in mind)

Most of us are lucky enough to have at least some discretionary income to spend on whatever we choose. One question this leads to is what’s the best use of this discretionary spending. Should we spend our money on nice restaurants? Clothing? Gadgets? Travel?

Luckily, psychologists have researched this question, and in general, assuming you’re optimizing for happiness, you should spend your money on experiences rather than material possessions. As stated in the linked paper, “people derive more enjoyment from discretionary experiential purchases than from discretionary material purchases”.

Travel is definitely an experiential purchase, so it’s a good way to use your money to increase your happiness. Same thing with spending money on restaurants, concerts, amusement parks, sports, etc. On the other hand, you might want to reconsider spending lots of money on clothing, jewelry, electronics, or other material goods.

Many of my friends are surprised how I can afford to travel so often. Part of it is through smart usage of miles and points, but it’s also largely because I don’t really spend money on non-consumable material goods. About 60% of my discretionary spending is for travel, about 30% for restaurants and food, and the remaining 10% for everything else, which includes my gym membership, toiletries, and gifts for others. The last time I bought a non-consumable material good for myself was 9 months ago when I bought a new pair of shoes (my old ones were literally falling apart) and a tote bag (you have to pay for disposable bags in San Francisco).

I’ve chosen to spend my money like this because I know that I derive more utility from going to new places and eating good food as opposed to having things. I also tend to dislike owning things as they often just create clutter and make things more complicated, which further reinforces my spending on experiences over material goods.

What’s the breakdown of your discretionary spending? Should you be devoting more to travel?