Turns out money can buy happiness—if you spend it wisely

Focus on experiences rather than material objects

Money does make people happier, but the relationship is more complicated than it appears, researchers tell the Wall Street Journal.

Simply being wealthy does not increase happiness on its own—rather, it is how people spend their money that counts. Recent studies have found that spending money on charity increases happiness more than spending on oneself.

The Wall Street Journal gives six tips for getting the most happiness bang for your buck:

1. Spend on experiences: Research has shown life experiences have more long-term value than material things—yet people often think spending on physical goods is a better value. "What we find is that there’s this huge misforecast," says Professor Ryan Howell, an associate professor of psychology at San Francisco State University who has studied the issue. "People think that experiences are only going to provide temporary happiness, but they actually provide both more happiness and more lasting value," he says.

Thomas Gilovich, psychology professor at Cornell University, explains that because it's harder to compare experiences to another person's, it creates less pressure to "[keep] up with the Joneses." Furthermore, experiences satisfy us on a deeper level than objects, because we often share them with others and use them to create our identity.

2. Don't adapt to what you buy: Sonja Lyubomirsky, psychology professor at the University of California, Riverside, says "human beings are remarkably good at getting used to changes in their lives, especially positive changes." However, that can mean people are never satisfied with what they have. Lyubomirsky recommends being mindful and practicing frequent gratitude to increase happiness long-term.

3. Give it away: Elizabeth Dunn, associate professor of psychology at the University of British Columbia and co-author of the book “Happy Money,” has conducted research on how charity affects happiness. In one study, she gave money to people and told them to either spend it on themselves or on another person. People who gave the money away were consistently happier. It is a finding that has been replicated in many other studies, and has a lesson for how people should spend what they have, Dunn argues.

If you can see your money having an impact in other people’s lives, it is likely to make you happier, no matter the amount, she adds.

4. Don't forget about time: Spending money on material goods often has a hidden cost—time. For instance, buying a house in the suburbs means a longer commute. A study conducted at the University of Zurich found that people with longer commutes reported lower overall life satisfaction. 

Dunn recommends outsourcing tasks you dislike to buy yourself more time to do the things you enjoy, adding "our hypothesis is that people will be much more likely to derive an emotional benefit if they think of it as ‘windfall time’ and use it to do something good, rather than just taking it for granted."

5. Recognize the limits of money:  Researches often measure two types of happiness, evaluative and affective. Evaluative happiness is a general sense of wellbeing, which tends to rise with income. Affective happiness looks at how often people experience positive emotions, such as joy. Researchers at Princeton University found affective happiness tends to stop rising after a household reaches an annual income of approximately $75,000.

As you earn more money, it has less of an impact on overall happiness.

6. Don't overspend: While certain types of spending certainly can increase happiness, overspending can have the opposite effect. People with low financial security are less likely to be happy. Dunn says "Savings are good for happiness; debt is bad for happiness. But debt is more potently bad than savings are good" (Blackman, Wall Street Journal [subscription required], 11/10).

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