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Money can buy happiness. If you spend it right

You've heard it many times before: The best things in life are free.

That might be why Allen and Violet Large, an elderly Nova Scotia couple, gave away nearly all of their $11.25-million lottery win.

It's a lovely sentiment people use to explain why money doesn't seem to make a big difference to happiness.

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Wealthy people do have longer and healthier lives, better nutrition, less anxiety, more time for friends and family - all things that contribute to a contented life - yet their reported level of happiness is surprisingly not that much greater than people who have less.

The problem isn't money - it's how people spend it, according to a new research paper.

"Money is an opportunity for happiness, but it's an opportunity that people routinely squander because the things they think will make them happy often don't," writes Elizabeth Dunn, associate professor of psychology at the University of British Columbia and co-author (with Daniel Gilbert of Harvard University and Tim Wilson of the University of Virginia) of "If Money Doesn't Make you Happy Then You Probably Aren't Spending it Right," to be published in an upcoming issue of The Journal of Consumer Psychology.

Some tips from their research:

Don't trust yourself to know what purchases will make you happy

Remember that famous diner scene in When Harry Met Sally? A customer mumbles, "I'll have what she's having," upon seeing Meg Ryan's character fake an orgasm at her table.

Well, you should follow the herd, too. Read consumer reports. Trust statistics on what makes other people happy. You're likely to feel the same way. (No, you're not as idiosyncratically fascinating as you think you are.)

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The problem all boils down to something called affective forecasts - the ability to predict how you're going to feel in the future. Sorry to disappoint you about your clever human faculties, but humans are bad at it.

Buy frequent, small pleasures

Financial planners love to warn you not to spend money on the little things, such as a weekly manicure, a latte, a beer with the guys after work. Those pencil-pushers are killjoys.

Thinking there's more happiness in saving up for the big purchase is not all bad, of course. (Hey, cars are useful.) But whatever pleasure you may get from that purchase is not going to last.

Blame it on our ability to adapt to great delights. The carpet you shelled out $3,000 for is going to be the same tomorrow, next week and the next decade. Having a $5 latte with your friends, on the other hand, is going to be different every time. Maybe Barb will bring a friend along for you to meet. She might tell you a funny story. This time, you might try a sprinkle of chocolate on the latte.

"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," Ms. Dunn writes.

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Spend Money on Others, not Yourself

There are other species as social as human beings, but few construct social webs as complex as ours. Which is why there's a happiness boost in spending money on others.

Avoid instant gratification

There's "free" happiness in anticipating the consumption of something. The thought of a holiday planned for next spring will give you months of pleasure even if the vacation itself turns out to be mediocre.

Pay now

Disregard the "don't pay for a year" exhortations from retailers. They encourage short-sighted behaviour, which may make you happy today, but "vast literatures" show that such impatience leads to later misery over debt and poor savings for retirement.

Buy experiences instead of things

Retail therapy is dealt a blow with this one. Studies show it's better to buy something you can experience - a massage, a day on the ski hill, a trip to New York - rather than prop up your mood with a new dress.

Part of the reason is that experiences focus the mind and keep us rooted in the here and now. ("A wandering mind is an unhappy mind," reads the paper.) A dress just doesn't have the same power. If anything, it sends your mind off thinking about how it will transform you into someone better, which of course never happens.

Also, and more important, experiences give you sensory memories, even if it is just the strength of Sven's hands on your sore glutes.

Consider how purchases will govern the quality of your time

When we imagine the happiness we're going to feel when we plunk down the dough on that "dream" cottage, for example, we're doing just that - imagining.

But our mental telescopes are rose-coloured. We fail to see the details of what the decision will entail. There will be mosquitoes that drive you crazy. You will be cooking for (and cleaning up after) all those family relations. If you buy a fixer-upper, you will be spending time waiting for that unreliable plumber and not drinking a latte with your friends.

Forget expensive warranties

Just as people make erroneous projections about how happy they're going to feel when they purchase something, they miscalculate how unhappy they'll be if something they've bought breaks.

Unless you're a person who totally freaks out when something breaks - in which case the cost of the warranty might be an important reassurance - wave off the pushy sales guy at the electronics store. The likelihood is that if the flat-screen TV does break, you'll confabulate reasons why it's perfectly fine to use the old one. You might figure it's better to use the smaller set anyway. You might like its retro appeal. You might come to think that all the flat-screen-TV hype is ridiculous.

Yes, the human brain can work wonders.

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