When you look back over the past year or so, what do you remember most fondly? Acquiring a new smartphone or your holiday snorkelling in the Med?
According to the latest research into money and happiness, the answer is much more likely to be a holiday or a great night out than even the most prized new possession.
The same research indicates that money can buy you happiness. Studies show that people in wealthier countries report feeling happier than people in poorer countries.
According to the United Nations World Happiness Report, the five happiest countries are in affluent northern Europe, while the least happy are in sub-Saharan Africa. And within a particular country, people with more money tend to be happier than those with less.
How to buy happiness
But there’s a proviso. What really matters is not how much money you have but how you spend it. That seems to be what most of us are getting wrong.
It takes self-knowledge and discipline to discover what I really want, instead of parroting the desires of other people
The instant gratification that comes from buying a TV or a fabulous pair of shoes certainly feels like happiness. It sometimes is happiness. But often it’s short-lived and may even come with a nasty aftertaste of remorse.
The new breed of happiness experts believe that we should spend less on material stuff and invest instead in what’s known to make people happy: good relationships and fulfilling experiences.
Elizabeth Dunn, Associate Professor of Psychology at the University of British Columbia and co-author of Happy Money: the New Science of Smarter Spending, says, “We often look at money as the ultimate end point when in fact changing the way you spend your time is the real route to happiness.
“Before you spend your money ask: how will this purchase change the way I use my time? Is this happy money?”
Dr Dunn suggests we take more account of what’s called “opportunity costs”, when choosing between a higher and lower priced model of a new phone or a car.
“People often neglect to think what else they could do with the money they’d save if they bought the cheaper option because these possibilities don’t spontaneously spring to mind.”
Spending money to buy time
The same applies when buying time; paying someone to clean the house or buying groceries online. Even if this means making sacrifices elsewhere – cutting down on cappuccinos, perhaps, or eBay spending – people tend not to make the most of the time that’s been freed up.
The trick, according to Dr Dunn, is to see it as a windfall of time, a kind of gift, to be used for an activity that really makes you happy, rather than simply getting on with the next thing on your to-do list.
The point about activities and experiences – whether it’s dinner with friends, a concert or a weekend break – is that they usually involve other people. They also offer the added pleasure of anticipation and remembering, often out of all proportion with the length of the experience itself.
The best experiences create “flow”, that magical sense of losing yourself in the moment, of being truly alive. This may come with learning a new skill, taking a course, or achieving a challenge.
That doesn’t have to mean abandoning your comfort zone, but choosing activities which are in keeping with your sense of yourself.
Spending money on what matters to you
Gretchen Rubin, the New Yorker behind the bestselling book and blog The Happiness Project, spent a year reforming her own spending habits. For a self-confessed “underbuyer” who was pretty averse to shopping, this wasn’t about spending less but about identifying positive purchases that would make her happier.
She says: “I wanted to spend money to stay in closer contact with my family and friends; to promote my energy and health; to work more efficiently; to eliminate sources of boredom, irritation and marital conflict; to support causes that I thought important; and to have experiences that would enlarge me.
“The secret was to ‘Be Gretchen’ and to choose wisely. What makes me happy is to spend money on the things I value – and it takes self-knowledge and discipline to discover what I really want, instead of parroting the desires of other people.”
Spending to feel good
Rubin spent more on healthier lunches, held a wedding party for her sister, splashed out on expensive work pens and had professional photographs taken of her children.
She also learnt that turning routine indulgences into occasional treats – buying a hardback book, say, or room service – enhanced their pleasure.
Finally, Rubin made a donation to a local children’s library project, a cause she felt passionately about. New research indicates that spending money on others provides a bigger happiness boost than spending money on yourself.
As the 19th-century philosopher Jeremy Bentham once said, “For every grain of enjoyment you sow in the bosom of another, you shall find a harvest in your own bosom.”
How to change your spending habits
Breaking old spending habits isn’t always easy, but wider changes have helped nurture new attitudes to money. The economic crisis forced people to re-think their spending priorities, to re-examine what genuinely makes them happy and what they can live without.
Suddenly the old-fashioned disciplines of scrimping and saving, planning and paying in advance, seem rather cool.
Meanwhile, the huge popularity of debit cards is beginning to wean people off the habit of consume now, pay later.
Dr Dunn approves. She explains, “A really good way to ruin your holiday is to constantly worry about how much everything is costing. If you can get that payment long out of the way, by the time you go on vacation it feels free. So it’s helpful to disentangle payment and consumption.
“Added to that, anticipation is a really valuable source of pleasure that comes free – as long as you buy in advance.”
Eight ways to use money to buy happiness
1. Break your monthly spending into “happiness categories”. Allocate a bigger proportion of your budget into buying time, buying experiences and investing in others
2. The best value activities involve other people, are tightly linked to an individual’s sense of themselves, and create “flow”
3. The length of an experience has little impact on the pleasure of remembering it, which can get rosier with time
4. When you see something you’re desperate to buy, wait a week
5. Before you spend your cash ask yourself: how will this purchase change the way I use my time? What could I buy with the money I save by buying a cheaper option?
6. Pay now, consume later
7. Book holidays several months in advance and shop around for good value deals. Great value doesn’t always mean cheapest
8. Turn things you routinely spend money on into occasional treats. By having them less often you’ll enjoy them more and have more cash to buy yourself time