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Get more happiness for your buck with these 8 simple rules for spending your money.

"Money can't buy happiness" is a common truism for a reason. While wealthy people tend to be happier than the less fortunate, the disparity isn't as great as you might think, and many of the most important things in life have nothing to do with money. However, there's a lot you can do to get more happiness out of the way you spend your money, no matter what your income level or life priorities might be. Fields like behavioral economics and social psychology have studied the link between spending and happiness closely, and you can conveniently take advantage of their findings in your daily life by following the eight simple — and frequently surprising — rules laid out by this 2010 paper.

Wryly entitled "If Money Doesn't Make You Happy Then You Probably Aren't Spending It Right," this collaboration between the academics Elizabeth Dunn of the University of British Columbia, Daniel Gilbert of Harvard, and Timothy Wilson of the University of Virginia is uncommonly accessible and easy to read for lay people. But since time is precious and the paper runs a bit long at 33 pages, we've summarized its 8 principles and the reasoning behind them for you below.

1. Buy Experiences Instead of Things.

It turns out that people tend to derive more happiness from experiences — seeing a concert, perhaps, or going to the beach for a day — than they do from purchased objects. One study asked participants to evaluate their happiness after both an experiential purchase and a material purchase; 57% reported increased happiness after the experience, while only 34% reported the same after the material purchase. One reason for this may be that even relatively neutral experiences can occupy the mind, which reduces the likelihood of the sort of rumination that can produce negative emotions. "A wandering mind is an unhappy mind," as the paper puts it. (Those who practice mindfulness may find this line of reasoning familiar.) Another reason is that we get used to having material purchases around relatively quickly and stop deriving new enjoyment from them, while the memory of a fun experience can put a smile on our faces for much longer after the fact.

2. Help Others Instead of Yourself.

Surprisingly, spending money on other people's wellbeing — called "prosocial spending" — can light up parts of the brain associated with receiving rewards. One leading rationale for this phenomenon has to do with humanity's fundamentally social nature; giving gifts can increase your awareness of your deep and lasting social bonds with others, which are in turn vital to your mental health. It can also reinforce those bonds, which in turn can give your mood a boost. Most people are unaware of this process and actually believe that spending money on themselves is a better way to improve their mood.

3. Buy Many Small Pleasures Instead of Few Big Ones.

This recommendation also seems rather counterintuitive at first, since small purchases often seem trivial in scope compared to big-ticket items like new cars and houses. However, it turns out that the opposite is true in practice — frequently paying for little daily pleasures has a stronger association with happiness than does investing in big one-off purchases once in a blue moon. You can thank humanity's ability to adapt for this quirk. While a major pickup like a new car may generate a bigger rush of delight than something more mundane, it's only a matter of time before you get used to it and cease to appreciate it as much. By contrast, each expenditure on a smaller bit of fun — such as a night out with friends — is likely to produce a slightly different experience from the last. The bit of novelty you get from each of these purchases allow them to collectively outweigh the heftier item over time.

4. Buy Less Product Insurance.

Various forms of product insurance, including the sort we call "extended warranties," are so ubiquitous to modern life that you could be forgiven for assuming that they're essential. However, many cognitive scientists consider them bad investments from a happiness-maximizing perspective, thanks once again to humanity's proclivity for adapting to new circumstances. In short, most people are actually much more psychologically resilient than they believe themselves to be. When bad things happen to them, they unconsciously defend themselves against the regret and self-loathing they might otherwise feel, often by deflecting blame onto factors beyond their control. As a result of this "psychological immune system," people typically feel far less emotional pain when they get burned by circumstances they failed to plan for than they think they'd feel when considering the possibility beforehand. Businesses make a mint off this self-perceived vulnerability, but in fact, the steep prices associated with warranties often can't be justified by the amount of pain they'd really alleviate if they came into play. (Note, however, that there is a much better argument in favor of insurance against major catastrophes, such as health insurance, fire insurance, and so forth. In these cases, we're helping to protect ourselves from a small chance of a catastrophic loss, and even if on average we pay in more money than we get out, they are often well worth it.)

5. Pay Now and Consume Later.

The modern economy is full of opportunities to consume now and pay later — credit cards and no-money-down car payment schemes are both clear examples. There are some well-known reasons why this consumption pattern can harm your happiness, the most obvious being that it encourages unsustainable overspending. (You probably know at least one person who's constantly struggling to manage their credit card debt.) But as the paper points out, another problem with consuming up front and paying later is that it eliminates anticipation from the equation. Waiting to enjoy something can produce extra happiness in a few different ways:

  • First, looking forward to an experience can be pleasurable on its own (and sometimes more so than the experience itself!).

  • Second, it can produce healthier decisions — people are less susceptible to temptation when making choices about the future than they are in the present, as anyone who's ever found themselves buying a sinful pastry when all they went to the coffee shop for was a cup of tea can tell you.

  • Third, anticipation often involves some uncertainty, and this element of surprise can keep the brain off-balance and thus produce more enjoyment. Think of the last time you saw a child on the verge of a joy spasm while opening her birthday presents; would she be as excited if she already knew what they contained?

For all of these reasons, it makes more sense to pay for your fun first and enjoy it later.

6. Think About The Details When You Make Decisions.

People tend to consider the consequences of their future decisions in broad strokes that leave out the little details. But in many cases, those mundane facts have a greater bearing on future happiness than the big picture does. As an example, the paper discusses the common dream of owning a rural vacation home. Most people would associate purchasing such a retreat with beautiful natural vistas, lazy days spent fishing, and a peaceful break from the bustle of modern life, rather than whatever minor irritations, such as plumbing problems and mosquito infestations, that it's likely to entail. Ironically, research has found that the little details this rose-tinted forecasting tends to crop out have a great deal to do with day-to-day mood — more, in fact, than the broader circumstances of life do. As a result, it's important to make financial decisions with a keen eye on how they'll affect your daily life in small but frequent ways, as these minutiae play a big role in determining your level of happiness.

7. Beware of Comparison Shopping.

Comparison shopping — in which shoppers size up products within a category and look closely at the differences between them — is as inescapable a feature of the modern consumer landscape as insurance. Unfortunately, the paper opines, comparison shopping can sometimes do more harm than good. The mechanism here is essentially distraction: comparison shopping encourages consumers to focus on aspects of the products in question that may not actually be relevant to the happiness they derive from those products. Here's one example of the strange behavior this dynamic can produce: "Hsee (1999) presented participants with a choice between receiving a larger (2.0 oz.) chocolate valued at $2 that was shaped like a real cockroach and a smaller (0.5 oz.) chocolate valued at 50 cents that was shaped like a heart. Although only 46% participants of participants predicted that they would enjoy the larger roach-shaped chocolate more than the smaller heart-shaped one, fully 68% of participants reported that they would choose the roach-shaped chocolate."

8. Follow the Herd Instead Of Your Head.

Modern consumers often face a choice between trusting detailed information or expert opinion about a product versus trusting crowdsourced ratings of the same product. (Consider the prospect of choosing which movie to watch based on trailers and review versus IMDb user ratings, for example.) The paper holds that the latter approach tends to yield better results. One example it provides involves a study on speed dating, in which a group of women were asked to guess how much they'd enjoy a speed date with a specific man. Part of the group was asked to guess based on a photograph and short bio of the man, while the others were merely shown a previous woman's rating of her experience of a speed date with the man. Women who were shown the rating predicted their own enjoyment with 50% less inaccuracy than those who saw the bio and photograph.


While these rules are useful and substantiated by empirical evidence, it goes without saying that they are not ironclad. The kinds of studies that they're built upon rely on trends among large groups of people to make their claims — and that means that some individuals will find that their experiences don't jibe with those trends. (For example: you might find that expert opinion more closely represents your feelings about certain types of products that you know a lot about than crowd ratings do.) Likewise, studies of this nature can go awry, as we've discussed before. And, of course, it's important to remember that your consumer decisions will never be the sole determining factor in your happiness, no matter how well you make them. Still, these rules provide a good starting point for learning to think carefully and cautiously about how you spend your money — and that can go a long way.

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