The Top Five Ways to Turn Money into Happiness

In their new book, Happy Money : The Science Of Smarter Spending (Simon & Schuster), Elizabeth Dunn and Michael Norton (professors at the University of British Columbia and Harvard Business School, respectively), offer five key principles to help us get more happiness out of the money we spend — principles which also help companies create happier employees and customers.

Most people know they can benefit from expert help to make more money. But oddly enough, they're quite sure they already know how to spend their money to reap the most happiness. As a result, they follow their intuitions, using their money to buy things they think will make them happy, from televisions to cars to houses.

What's the problem with this approach? A decade of research demonstrates that people's intuitions about how to turn money into happiness are misguided at best and dead-wrong at worst. Those televisions, cars, and houses? They have almost no impact on our happiness.

The good news is that we now know what kind of spending does enhance our happiness--insight that's valuable to consumers and companies alike. Here are the top five ways to turn money into happiness according to Dunn and Norton:

1. Buy Experiences

Material things provide less happiness than experiential purchases (like trips and special meals). Whether you're spending $2 or $200,000, buying experiences rather than material goods can inoculate you against buyer's remorse. Even painful experiences can produce pleasure; by harnessing the power of experiences, a company called Tough Mudder convinces people to pay for the privilege of crawling through mud.

2. Make It a Treat

When wonderful things are constantly available, we become less able to appreciate them. Limiting access to the things we like best helps renew our capacity for pleasure. Turning our favorite things back into treats (like making that afternoon latte a special indulgence) increases happiness for purchases major and mundane. Companies have transformed products ranging from rental cars (Zipcar) to toilet paper (Charmin) into treats — enhancing their customers' experiences.

3. Buy Time

Money should permit us to outsource our most dreaded tasks (Think: toilet cleaning). Ironically, though, research shows that wealthier people do not spend their time in happier ways. Ask a quick question before buying: How will this purchase change the way I use my time? Companies like Intel and Patagonia compensate employees not only with money but with time, giving even their busiest employees a new sense of time affluence.

4. Pay Now, Consume Later

Digital technology and credit cards have encouraged us to adopt a "consume now and pay later" shopping mind-set. By reversing this trend--paying now and consuming later--you can buy more happiness, even as you spend less money. Delaying consumption allows us to reap the pleasures of anticipation (why vacations provide the most happiness before they occur); waiting even for a mere Hershey's Kiss makes things sweeter when we get them. And people are less prone to overspend when they pay up front; decreasing debt is a sure path to increased happiness.

5. Invest in Others

Research shows that spending money on others provides more happiness than spending money on yourself. The principle holds in countries rich and poor, from Canada to Uganda, India to South Africa. Investing in others can make individuals healthier and wealthier and can even help people win at dodge ball. Companies like PepsiCo and Google and nonprofits like DonorsChoose.org are harnessing these benefits by encouraging donors, customers, and employees to invest in others.

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