In a world where so much attention is devoted to money and happiness, it’s bizarre that the link between the two is so poorly understood. Data and research consistently show that happiness isn’t related to how much money you have or how much money you make, but rather on how you spend it.
In the book, Happy Money: The Science of Happier Spending, authors Elizabeth Dunn and Dr Michael Norton highlight five principles which show you how to spend your money in a way that makes you happier. While some may seem counterintuitive, each suggestion is highly applicable in your daily life.
Most people assume that winning the lottery would make them happier. They think once they can buy that luxury car or dream beachfront house, then they will truly be happy. Let’s examine this notion more closely.
Sure, there is a connection between money and happiness. In fact, at least 17,000 academic articles have been written supporting the existence of such a connection, so clearly there’s something to it.
But we are mistaken in assuming that the connection between money and happiness is linear and automatic; that is, that more money will always make us substantially happier.
One study showed that Americans typically assume that if their income were to double, from $25,000 to $55,000 a year, they’d be roughly twice as happy. But statistics show that this only results in a 9 percent increase in happiness.
So why does having more money not make us as happy as we’d think?
It’s simple: your level of income has little influence on how much you smile, laugh or enjoy yourself on a daily basis.
In fact, research has shown that just thinking about wealth can suppress behaviors which would make you happier. In one study, showing participants a photograph of money made them more likely to choose to engage in solitary activities, such as personal cooking classes, rather than social activities which might make them happier, like having dinner with friends.
So while having more money won’t necessarily make you happier, having money in general isn’t a bad thing. What if the problem actually lies in how you choose to spend your money?
Food costs money. Clothes are expensive. Taxes can’t be avoided. Unless you live on a self-sufficient farm, off the grid and somehow under the federal radar, you can’t avoid spending money to live.
So instead of treating it as a chore, how can we spend money so it makes us happier?
The answer is to spend less on material things such as cars and electronics and use your cash to have experiences, like attending an open-air concert or having dinner out.
Such advice is backed up by data, too. One survey found that when asked to consider their latest purchases, 57 percent of Americans felt they’d experienced more happiness after spending money on a vacation rather than on a piece of jewelry. Only 34 percent felt the other way around.
Another study showed that American adults over 50 who consider themselves generally happy tend to mostly spend their money on leisure activities, such as going to the movies, attending sporting events, joining a gym, and so on – all experiences.
But what is it about an experience that makes us feel happier?
Experiences create memories. Each time we enter a concert hall or baseball stadium, we’re filled with sights, sounds and smells that stimulate our senses. Friends or family that participate in the experience help make the memory even more profound, and increase our sense of belonging. A simple object just doesn’t have that sort of influence.
And when we think about our memories, we’re able to relive that experience and feel happy, time and time again.
Experiences too don’t have to be expensive or grandiose to be meaningful. Studies show that even when someone has just a little cash on hand, they’ll get more pleasure from purchasing an experience such as listening to a new song rather than buying a cheap product.
Would it surprise you to hear that most Londoners have never visited Big Ben? Even though this historic landmark is just a subway-ride away, locals just don’t seem to bother.
This phenomenon illustrates a tendency in human behavior: when something is abundantly or easily available to us, we appreciate it less.
This means that even your favorite things, like a morning cup of hot coffee, can become less pleasurable if you indulge too frequently.
The way to combat this is to turn these common things back into special treats. Instead of guzzling 10 cups a day, allow yourself a luxurious afternoon cappuccino only every now and then.
This way, by limiting your access to the thing that brings you pleasure, you will paradoxically increase its impact. The afternoon cappuccino will start to feel like a reward and will actually make you more happy.
Another way to increase the pleasure you gain from a treat is to remind yourself how special it is. Don’t just think in generic terms, but consider the details: where the coffee beans were grown and how they were roasted to create the cup’s rich combination of flavors.
One study showed that car owners increased their appreciation for their vehicles through this approach, too. When a car owner was asked to detail the specific characteristics of her car – its make, model or horsepower – the owner actually enjoyed driving the car more.
A third way to increase your enjoyment is to divide your treats into small pieces.
Studies show that most people would rather experience a greater number of small pleasures than a smaller number of large pleasures. This is because our brain interprets several pleasurable events as being more beneficial than a single, pleasurable event.
Some companies have figured this out, as can be seen for example in the pricing of a massage at the luxurious Beverly Hills Spa in California. While a 90-minute massage costs $230, three 30-minute massages cost $330, as people get more pleasure from three massages than just one.
It’s said that money is the root of all that’s evil, but really, there’s nothing intrinsically evil about money itself. Money can be very helpful, giving us more time to pursue our passions.
Having money can help you save time by outsourcing chores, for example, such as house cleaning to a service provider, so you don’t have to dust and mop yourself.
With money, you can also purchase time-saving goods.
A Roomba vacuuming robot, as just one example of a time-saving good, costs approximately $300. Though this may sound expensive, consider how much time you waste vacuuming, and what you could do with that extra time instead. You could perhaps use that time to learn a musical instrument – something that will give you much more happiness than vacuuming.
Yet when you’re looking for time-saving goods, don’t spend hours hunting for a bargain that might just save you a couple of dollars. Time is precious! You should be spending that time on activities that make you happy, so spend a few extra dollars and relish the time your choice has freed up.
Unfortunately, most people don’t seem to understand that money can be used in these ways to increase their happiness.
Since the 1960s, in most countries income levels have risen, but people are still not using their time in ways that make them happier. In fact, studies show that people spend most of their free time shopping or doing housework, both of which increase feelings of tension and depression.
So don’t hesitate to outsource or automate activities that aren’t making you happier, and at the same time spend money to enhance activities that do make you happier.
For example, if you love reading and listening to music, you can buy yourself an e-reader and better headphones so that you get more from these activities.
Check out my related post: How to perfect the art of happiness?