The Happy Money research also shows that we often radically undervalue our time, for instance by wasting hours on a miserable layover in Atlanta rather than spending the extra $150 to get a direct flight.
Perhaps most counterintuitively, they found that giving money away is more likely to make you happy than spending it on yourself. When random passersby were given a $5 bill and were instructed to either spend it on themselves or to spend it on someone else, those who gave it away reported feeling significantly happier that evening.
Spending on others makes you feel good, generous and wealthy.
In Happy Money, authors Elizabeth Dunn and Michael Norton analyze what spending choices maximize happiness. Here are some of their suggestions.
Five ways to buy joy
1. Buy experiences
Studies have shown that paying for trips or special meals creates more happiness than buying objects. Even spending a few dollars to play a video game or hear a song provides more lasting happiness than buying a few trinkets.
2. Make it a treat
Humans adapt to everything, including things that make us happy. Research shows that we vastly underestimate just how quickly our pleasure will fade. Instead of cutting out ice cream completely, by limiting it to special occasions we can “re-virginize” ourselves, renewing our capacity for pleasure.
3. Buy time
While wealth theoretically allows us to outsource some of our most hated tasks, most people tend to overvalue money and undervalue time. Before you make a purchase, think: “How will this change the way I use my time?”
4. Pay now, consume later
Paying up front and delaying your consumption is one way to increase your happiness on any given purchase. Vacations make us most happy because of the anticipation. Studies have shown that even waiting briefly before eating a Hershey’s Kiss makes it taste better.
5. Invest in others
Research shows that spending money on others can make you more happy than spending on yourself. This is true for Warren Buffett, who famously decided to give away 99 per cent of his wealth, but studies also show that it’s true for Ugandan women buying life-saving malaria medication for a friend. Earn your money, but to be happiest, it helps to spread it around.
That said, there is no one prescription – the idea of carefully creating a ledger of expenditures based on psychological research, following your budget, and then expecting to be happy at the end is misguided. Indeed, there have been numerous studies that show that perhaps the least helpful thing you can to do is consciously focus on your happiness.
While academics might argue about the precise nature of the relationship between money and happiness, they would all agree that we tend to overvalue it. A national survey revealed that Americans thought that their life satisfaction would double if they made $55,000 rather than $25,000. In fact, such an income leap only produces 9 per cent more happiness.
You can read the studies or watch a blockbuster F. Scott Fitzgerald adaptation to get the same message: Money matters, of course. But it never matters quite as much as we think it will.