"If money doesn't make you happy, then you probably aren't spending it right."
That's the excellent and descriptive title of a paper published last year in the Journal of Consumer Psychology by the University of British Columbia's Elizabeth W. Dunn, Harvard's Daniel T. Gilbert, and UVA's Timothy D. Wilson.
The paper, which summarizes decades of study on the subject, notes that "money allows people to do what they please, to live longer and healthier lives, to buffer themselves against worry and harm, to have leisure time to spend with friends and family, and to control the nature of their daily activities—all of which are sources of happiness."
Unfortunately money is "an opportunity that people routinely squander because the things they think will make them happy often don't."
So how do you make sure to spend your money in order to to maximize your happiness? Follow these eight steps:
Buy experiences instead of things
Experiential purchases — those which are “made with the primary intention of acquiring a life experience: an event or series of events that one lives through" — are proven to make the purchaser more happy than purchases on material goods.
Unlike material goods, which grow less exciting over time and then obsolete, experiences continue to provide happiness through memory.
Help others instead of yourself
Spending money in order to achieve pro-social goals leads to greater levels of happiness than spending money on oneself. The report posits that pro-social spending has a "surprisingly powerful impact on social relationships," because "strong social relationships are universally critical for happiness."
Buy many small pleasures instead of few big ones
The paper note:
"Adaptation is a little bit like death: We fear it, fight it, and sometimes forestall it, but in the end, we always lose. And like death, there may be benefits to accepting its inevitability. If we inevitably adapt to the greatest delights that money can buy, then it may be better to indulge in a variety of frequent, small pleasures—double lattes, uptown pedicures, and high thread- count socks— rather than pouring money into large purchases, such as sports cars, dream vacations, and front-row concert tickets. This is not to say that there's anything wrong with large purchases. But as long as money is limited by its failure to grow on trees, we may be better off devoting our finite financial resources to purchasing frequent doses of lovely things rather than infrequent doses of lovelier things."
Buy less insurance
The initial gains in happiness when one purchases a good typically outweigh the sadness that follows its loss, according to recent research. In fact, people are much better at dealing with loss than they realize.
This doesn't mean, however, you should just drop your life, car, and homeowner's insurance — the report mostly refers to extended warranties and insurance for cheaper, physical goods.
Pay now and consume later
Paying now and consuming later is not only good for your finances, but also for your happiness.
What most do not realize is that lay-away and similar payment plans eliminate anticipation, "and anticipation is a source of 'free' happiness." The report and supporting studies claim that thinking about future events "triggers stronger emotions than thinking about the same event in the past."
Furthermore, delayed consumption forces consumers to think about what they choose, thereby helping them to avoid vices that supply immediate benefits but do not help to derive pleasure in the long term. Also, a delay in purchase tends to create uncertainty, which "may help to counteract the process of adaptation by keeping attention focused on the product."
Think about what you're not thinking about
Avoid thinking about the future in overly simplistic terms.
For instance when contemplating purchase of a vacation home, don't think only of an idyllic fishing retreat, but think also of the maintenance costs, mosquitoes, commutes, and other uglier aspects of the scenario.
The report adds: "Consumers who expect a single purchase to have a lasting impact on their happiness might make more realistic predictions if they simply thought about a typical day in their life."
Beware of comparison shopping
Next time you go to scour eBay or Craigslist to get the best deal on your next purchase, you might want to keep the following in mind:
"By altering the psychological context in which decisions are made, comparison shopping may distract consumers from attributes of a product that will be important for their happiness, focusing their attention instead on attributes that distinguish the available options."
Follow the herd instead of your head
Heeding the advice of experts, or those who have been through a particular experience or purchased a particular good before, can be beneficial in deriving happiness through one's expenditures. Research cited in the study suggests that "the best way to predict how much we will enjoy an experience is to see how much someone else enjoyed it." Odds are if a movie broke a box office record, you'd probably enjoy it too.
