Consumption Smoothing

Our incomes might vary from one month or one year to another, but that doesn’t mean our spending should reflect those variations—we would be better off if we evened out those variations. To do that, we need to basically transfer money from years of abundance into the leaner years. 

Many psychological studies have shown that spending money on experiences makes us happier than spending money on  things. Unlike material possessions, which seem exciting at the beginning but then often depreciate quickly, experiences actually gain in value over time.

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