8 ways to spend on happiness

If money can’t buy happiness, it’s probably your fault. True, having more money does make people happier, but not that much happier. The key isn’t necessarily how much we have, but rather what we do with it, say experts Elizabeth W. Dunn, Dan T. Gilbert and Timothy D. Wilson.

“Money is an opportunity for happiness, but it is an opportunity that people routinely squander because the things they think will make them happy often don’t,” the researchers claim in their recent paper, “If Money Doesn’t Make You Happy Then You Probably Aren’t Spending It Right”, published in the April 2011 issue of Journal of Consumer Psychology.

Not to leave us hanging, Dunn, Gilbert and Wilson outline eight principles to help us get more happiness for our money — and warn us what traps to avoid. Here are their tips:

Spend on experiences, not stuff

Several studies have pointed out the benefits of spending on experiences rather than material goods. The problem is we adapt to things too quickly — like new floors or a TV — and they matter less as time goes on. However, the memories we have from doing something last long beyond the experience itself. We relive the happiness and feeling of vitality when we recall the memories.

Not only that, but we share experiences with other people and strengthen social connections. Experiences also become part of our identity in a way that things can’t. Besides, experts note we’re happier thinking about experiences than things, and we look forward to them more.

However, you don’t have to spend big or go far, say experts. While some people focus on travel, something as simple as taking a cooking class can provide the same benefit.

Naturally, the line between “material goods” and experience is often blurry — like the bicycle that takes you on picnics. The authors note when we focus on what an item allows us to do, we’ll be happier with our purchases.

Spend on others

Whether it’s a gift to a loved one or a donation to charity, when others are happy we’re happy too. Essentially, humans are social animals and happiness often stems from things that help us form and strengthen our connections with others. (As we know, strong relationships are crucial to our health and well being.) Studies conducted all over the world repeatedly show people who dedicate more of their income to “prosocial spending” tend to be happier.

However, don’t think it over too much. Research also shows that the more we think about money, the less likely we are to give it away.

Enjoy many small pleasures

Still think bigger is better? While there’s nothing wrong with large purchases, smaller and more frequent purchases actually provide more pleasure, say experts. Why? In general, people who are able to enjoy the simple pleasures in life are happier than people who need increasingly bigger and better ones — but that’s only part of the story.

Often what makes the difference is how long the experience lasts and how quickly we adapt to it. For example, in one study people who ate two smaller cookies at separate times got more pleasure than people who ate a double-sized cookie in a single sitting. We get the most pleasure from the first moments of the experience — like those first few bites of cookie — and then the novelty starts to wear off. By opting for smaller and more frequent pleasures, we can make the most of those initial bursts.

Also, the time in between pleasures also builds anticipation — another factor that heightens our happiness.

Buy less insurance

Sometimes we pay too much for peace of mind in the form of overpriced extended warranties — or accept a higher sticker price for a better return policy or promise of customer service. Truthfully, we’re quite elated when we make a big purchase — and that’s when we’re most worried about protecting our new possession. We hate to have regrets, and we’re willing to spend extra to avoid them.

However, it turns out we’re better at dealing with problems than we think. Gilbert notes that we have a ” psychological immune system” — our mind’s way of adapting to events by lessening our regrets. The flip side of experiences making us happier than stuff is that negative purchases don’t affect us as much either.

For instance, if your new gadget breaks after two years, chances are you won’t be as upset as you thought you’d be when you made the purchase. In other words, we could be letting emotion get the better of us when we make the purchase while purchasing a warranty has little impact on our future happiness.

How can you avoid this impulse? Research the warranty policy before you buy, not at the point of purchase. Most places allow you a few days to think it over, so let the emotional peak wear off.

Pay now, enjoy later

While credit cards encourage us to do the opposite, there’s something to be said for delaying gratification. Instant gratification makes it easy to get into debt and causes future unhappiness, but more importantly it eliminates the pleasure of anticipation. As mentioned before, we’re happy just thinking about things we’d like to buy or do — so why truncate that pleasure? Sometimes we get more pleasure looking forward to an experience than we get from the experience itself, and the anticipation is better than the memories.

So why do we give in to the present? According to the paper’s authors, it’s another “affective forecasting error” — that is, another way we’re wrong when it comes to predicting our future happiness. In this case, people often think that an immediate pleasure will be greater than a future one, as if the feelings will diminish over time. However, research has shown the opposite — it’s better to wait. Uncertainty is part of the fun because we can imagine all the possibilities (rather like present under the Christmas tree) so our feelings stay strong.

Waiting also shifts the focus from short-term benefits to long-term ones, so we’re more likely to make a decision that brings lasting happiness.

Pay attention to the details

However, there is one disadvantage to waiting: research shows that the farther away an experience or purchase is, the more likely we are to overlook the details — and that’s where happiness lies. Our day-to-day ups and downs have more effect on our overall happiness than major events.

How does this translate to spending? The authors recommend digging down to details like considering how you’ll spend your time. For example, if you’re purchasing a cottage, think about what you’ll do there, including the less attractive things like dealing with repairs or how long it takes to drive there. Don’t get too wrapped up in broad concepts like “peace and quiet” and “great place to gather”. As with any purchase, you’ll be further ahead if you consider how it fits into your life. Focus on the everyday rather than the highlights.

Compare with caution

How often do we hear to comparison shop to save cash? Unfortunately, this frugal habit does have a downside. Often, we lose sight of what’s important when we fixate on prices and favour certain features over others — like what makes an item different instead of what features we actually need.

Worse yet, we can get too focused on finding the “best deal” and end up paying more for features we don’t need or use. Unfortunately, how we view an item when we’re shopping is very different from how we view it when we use it. Experts note that once we’re using something, the competition often fades into the background. In other words, chances are we’ll be pretty happy with our purchase regardless of which option we chose.

Consider what makes others happy

There’s something to be said for word of mouth, not to mention online user reviews. Research demonstrates that we’re usually happy with things that make other people happy too — and what others think can influence us as well. In one study, women were asked to predict how much they’d enjoy a date with someone. The group who saw other people’s reviews more accurately predicted their happiness than those who only saw a picture and biography.

In other words, if you want to know if you’ll like something, ask around. People are often happy to share what they did or didn’t like about a purchase or experience. However, there’s an addition advantage to asking someone you know rather than reading online reviews: your friends, family and coworkers can tell you how happy they think an item will make you and why. They also pick up on subtle cues we don’t see — like a facial expression we make while reviewing choices.

So what’s the takeaway from all these principles? When it comes to money, happiness may be more about what’s going on in our heads than in our bank accounts.

Read the abstract here.

Photo ©iStockphoto.com/ Daniel Laflor

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