Whilst the Beatles sang “Money Can’t Buy Me Love” and that is probably true, it turns out that “Money CAN Buy Happiness”.
Scientific research has concluded that it is how you spend your money that can affect your level of happiness, both positively and negatively.
To help you spend your money wisely, here are six ways of doing things with your money that can have a positive impact on your level of happiness:
1. Spend money on others, not yourself
In a groundbreaking set of studies, University of British Columbia professor Elizabeth Dunn and her collaborators set out to test the notion that money can buy happiness, but only if it’s spent pro-socially— that is, when we invest in others, rather than in ourselves.
Here’s one experiment. On a summer morning in Vancouver passersby were approached with a box of envelopes and an unusual request. People were asked how happy they were and then were handed a mysterious envelope. When people opened the envelope, they found a $5 or $20 bill, accompanied by a simple note. For some of them, the note instructed:
Please spend this $5 (or $20) today on a gift for yourself.
Others found a note that read:
Please spend this $5 (or $20) today on a gift for someone else.
That evening, they received a call asking them how happy they were feeling, as well as how they had spent the money. It turned out that individuals who spent money on others were measurably happier than those who spent money on themselves. Even though there were no differences between the two groups at the beginning of the day.
It also turned out that the amount of money people found in their envelopes ($5 or $20) had no effect on their happiness. How people spent the money mattered much more than how much of it they got.
2. Spend money to give you time
Researchers asked participants to record everything they did for a whole day. Comparing recent time diaries to similar diaries from earlier decades revealed that people spend about four hours more per week engaging in leisure than they did in the 1960s. It turned out that our sense that we have less free time now than people did in earlier decades may be largely an illusion.
A more likely culprit behind the perceived time famine in modern life is financial prosperity. While wealthier people report feeling more pressed for time, simply feeling like your time is valuable can make it seem scarce.
Why? Scarcity increases value. And conversely, when something is valuable, it is typically perceived to be scarce. As time becomes worth more money, people see that time as increasingly scarce.
Yet, people who feel they have plenty of free time are more likely to exercise, do volunteer work, and participate in other activities that are linked to increasing happiness. For example, connecting with friends, nurturing intimate relationships, consuming art, music, and literature, learning new languages and skills, honing talents. Tellingly, these are precisely the activities that people on the brink of death, like mountaineers caught in a blizzard on Mount Everest, wish they would have spent more time doing in their everyday lives.
Although money can be used to buy free time, in part by outsourcing the demands of daily life such as cooking, cleaning, and even grocery shopping, wealthier individuals report elevated levels of time pressure.
The critical issue is how people consume the extra time they buy.
If, instead of doing something meaningful, engaging, fruitful, or growth-promoting, people fritter the hours away by mindlessly watching television shows, obsessing over their looks or gadgets, or drifting aimlessly from one undertaking to the next, then happiness will surely not come from riches.
3. Spend money now but wait to enjoy it
For example, a month before embarking on a guided twelve-day tour of several European cities, eager travellers report expecting to enjoy their trip significantly more than they actually do during the twelve days.
Identical results are found when students are surveyed about their expectations three days before their Thanksgiving vacation, and when midwesterners were surveyed three weeks before a bicycle trip across California.
Indeed, researchers who studied a thousand Dutch vacationers concluded that by far the greatest amount of happiness extracted from the vacation is derived from the anticipation period, a finding that suggests that we should not only prolong that period but aim to take several small vacations rather than one mega-vacation.
4. Spend money on experiences rather than possessions
Growing evidence reveals that it is experiences— not things— that make you happy.
Many experiences, such as hikes with friends or family game nights, are virtually free. And many others — road trips, boozy dinners, sports tournaments, cooking lessons, and rock concerts — cost money…
In sum, the research on the superiority of experiences over possessions is hugely persuasive, and all of us — but especially those of us with meagre budgets — would do well to apply its recommendations.
However, it’s important to remember that material things can also make us happy — as long as we turn them into experiences.
We could take along our family and friends on an adventure in our new car, we could throw a party on our new deck, or we could practice a self-improvement program on our new smartphone.
5. Spend money on many small pleasures instead of a few big ones
A researcher, for example, interviewed people of all income levels in the United Kingdom and found that those who frequently treated themselves to low-cost indulgences — picnics, extravagant cups of coffee, and treasured DVDs — were more satisfied with their lives.
Other scientists have found that no-cost or low-cost activities can yield small boosts to happiness in the short term that accumulate, one step at a time, to produce a large impact on happiness in the long term.
6. Spend money on fundamental feelings
If money isn’t making you happy, it’s likely because you are spending it to keep up with your friends or neighbours.
The problem, then, isn’t in the money but in how you are using it.
Perhaps the most direct and most reliable way to maximize the happiness and fulfilment that we can extract from money is through need-satisfying pursuits— for example, by spending capital on developing ourselves as people, on growing, and on investing in interpersonal connections.
In other words, the purchases or expenses that will yield the greatest emotional benefit are those that involve goals that satisfy at least one of the three basic human needs:
- competence (feeling capable or expert)
- relatedness (belonging and feeling connected to others)
- autonomy (feeling a sense of mastery and control over one’s life)
Such activities have been shown by researchers to bring happiness and, equally important, not to stimulate ever-increasing addiction-like desires for more and more.
Also, if you haven’t seen it yet, check out the Michael Norton TED talk “How to buy happiness“.
A version of this article was published by Michael Kitces on his blog Nerd’s Eye View, October 15th 2013 and on Ronald Sier’s blog See Beyond Numbers on September 5th 2013. It is republished here with full permission.