Pay now and consume later for happier spending

Behavioural economists coined the term "the pain of paying" to describe this experience and according to Elizabeth Dunn and Michael Norton, authors of Happy Money, if we can separate the pain of paying from consumption, we'll enhance the pleasure of the purchase and reap more happiness for every dollar we spend.

Let's look at how these two approaches of separating payment and consumption rate on the happiness scale.

Pay now, consume later

"The pleasure of consumption is purest without the experience of paying for it," say Dunn and Norton.

Nothing tastes better than free, and an all-inclusive resort holiday may be the ultimate pay now and consume later experience. You'll pony up for the cost of the trip in advance but the pain of paying will be a distant memory when you hit the buffet, cocktail hour and kids activities without ever reaching for your wallet. Sure we paid for it, but it was so long ago, now it just feels free.

Paying now and consuming later is also an opportunity to capitalise on the excitement we feel when anticipating having an experience or using a product.

Joy increases as the days tick down to that month-long break in France or arrival of a pre-ordered iTunes album. Particularly in the case of holidays, there's plenty of time to seek out details that promote exciting expectations about the experience itself, like reading every Lonely Planet article written about wine and cheese tours in France.

If the consumption part of the equation will be over quite quickly, the delay provides an opportunity to draw out pleasure beyond the experience itself. Anticipation is a sure way to squeeze out twice the happiness bang for your buck.

Paying in advance can also be a savvy way to manage personal finances, with early-bird discounts and pre-payment bonuses.

Pay later, consume now

As a nation, Australia collectively racks up an average $27,053,329,781 spend per month on credit cards. The plastic empire has been built on the idea that consumers are highly motivated by the power of now. We want the fun stuff immediately and to deal with the not so fun part of paying, later. Credit offers a temporary anaesthesia for the pain of paying now.

But by reversing the steps and taking the experience now and paying later, ultimately the pleasure of the experience can be outweighed by a credit card bill looming at the end of the month. According to Nobel prize winner and founder of behavioral economics Daniel Kahneman, it's the bill that will stick in your mind and taint the whole experience.

Kahneman's "peak-end" rule means when we recall an experience, our primary feeling about it overall is largely determined by the either high or low point of the experience, at the end.

Using examples from holidays to colonoscopies, Kahneman's TED Talk The Riddle Of Experience Vs Memory reveals how our "experiencing selves" and our "remembering selves" perceive happiness differently.

So the memory of the three rounds of mojitos is a lot less sweet when you wake up the next morning with a fuzzy head and check your credit card statement.

The detachment of using credit to consume now and pay later also leaves the mojito sipper disillusion about how much money has actually been spent ??? maybe those three rounds were actually five? Underestimating expenditure and habitually consuming now and paying later with credit is a slippery slope to financial over-commitment.

Pressing pause and waiting to consume is not harsh self-denial, it's good for your wellbeing. When we make the decision to delay our consumption, we become better stewards of our own happiness. It can be difficult to overcome the power of now, but by planning for future consumption we can reap the benefits of delayed gratification, greater control of our finances and squeeze more happiness from our spending habits.

Catherine Robson is an award-winning financial planner with Affinity Private. Twitter:@CatherineAtAff.