The holidays: the time of year where people are the most generous with their spending. Getting the best bang for you buck is essential, but what about getting the most happiness for your buck?
Elizabeth Dunn, an associate professor of psychology at the University of British Columbia, and Michael Norton, an associate professor of marketing at Harvard Business School, answer these questions in their book, “Happy Money: The Science of Smarter Spending.”
Below are the five ways to ensure you maximize you happiness when spending.
Buying a material good (eg. a car) vs. an experience (eg. a trip to Barcelona) with friends might seem like a close call for some but for science, the latter is bound to make you happier. Your brain has the tendency to adapt quickly to things it possesses so after the first few rides, your shiny new car just becomes, your car. With a trip to Barcelona, the anticipation of going, the stories you come out of it with, and the experiences you share with others provides increasing benefits over time to your happiness.
“Abundance, it turns out, is the enemy of appreciation,” the authors on Happy Money write. Using your money for surprises can be a great way to produce happiness and mitigate the mundane feeling of predictability and routines. Human brains love surprises.
Having more time is a form of wealth that can be used to “buy” more happiness. This is why time saving apps and services are so popular in today’s world. You can also perceive having more time by giving back through something such as volunteering. It makes us feel even more time-affluent, and lets you rationalize things in your mind; “If I have time to volunteer at the Santa Clause Parade today I must have a great work-life balance and enough time to do things I would never usually have the time for!”
There is one major reason credit cards are so appealing; they separate your purchases from the pain of seeing money leave your wallet. While the consume now and pay later mentality is hard to argue with, flipping the equation around has its merit as well. Paying in advance for something you will consume in the future makes the actual purchase feel in our brains as if it was free. Take a vacation for example, looking forward to it is usually where you get the majority of the utility. “Because delaying consumption allows spenders to reap the pleasures of anticipation, without the buzzkill of reality,” the authors say, “vacations provide the most happiness before they occur.”
Lastly it’s also true that paying ahead of time is an effective check on overspending, who doesn’t feel happy about staying within budget?
This is one you’re likely experiencing to a greater extent this holiday season. “Spending money on others provides a bigger happiness boost than spending money on yourself,” says the book. There is even research that demonstrates that this principle holds true in impoverished countries.
You can buy the book here and learn more about the topic from the authors themselves in the below interview.