As you plan the year ahead, think about how you will be spending your money in 2016. Ok, got a few things in mind? Now let’s think about whether those big spends will make you happy.
At Earnest, we wanted to take a step back and look at what psychology research says about spending money and how it relates to happiness.
Elizabeth Dunn, a psychology professor at the University of British Columbia, and Harvard Business School marketing professor Michael Norton are the co-authors of Happy Money: The Science of Happier Spending.
According to their book, it turns out that much of what drives happiness is not money itself so much as the connection with another person — or an experience — that spending can generate.
“By giving to another person, you’re creating a connection and a conversation with that person, and those things are really good for happiness,” Norton told the Harvard Business Review about why spending money on others makes us feel so good.
Here are the authors’ five Happy Money principles:
Spend your money on experiences
Yes to going on that beach vacation, no to buying a new stereo system. According to Happy Money, people are happier when they spend money for an experience — vacations, restaurants, education, and even home improvement — rather than buying more things (electronics, cars, clothing).
Consume more sparingly
You really love chocolate mousse, but if you ate it every day, it might not taste so good. The same goes for spending money. Research shows that when you have your favorite things less often, the more you enjoy them when you do. In other words, a treat is a treat because it’s a treat!
Your time is also money
How nice would it be to have someone else do the laundry? Spending money on services that can make your life easier — say, grocery delivery, a shorter commute, or a cleaner house — can feel like money well spent and lead to happier consumption, the authors say.
Pre-pay your way (when you can)
You can’t always pre-pay everything (hello student loans), but when you can save up in advance, do it. Paying for things before enjoying them can lead to greater anticipation and enjoyment of the very thing you have purchased, according to research.
It’s all about other people
Just thinking about money tends to make you ever more self-centered, past research shows. But generosity is the antidote. Dunn and Norton’s research also shows that you can get more happiness from your money when you spend it on other people.