Money can buy happiness (it’s science)

We’ve all heard the saying, money can’t buy you happiness. But I’ve recently found out that for years, we’ve been duped by this one. Money can buy you happiness; but only if you know how to spend it.

I recently met a behavioural psychologist who has done a bunch of research on how we spend money. This guy is certainly no hack. Michael Norton is a professor at Harvard and was previously at the MIT Sloan School of Management. Norton has collaborated with legends of behavioural economics including Dan Ariely and Elizabeth Dunn, just to name a few. [He’s also done an awesome TED talk which you can check out here]. His recent area of interest has been in how much happiness various types of spending can bring to us and he now has loads of research to answer this question (and has even written a book on the topic).

Norton’s research and findings blew me away. He confirmed something I’d long suspected, and many of us know, but seem to ignore. But before I get to Norton’s punchline, let me tell you a story which illustrates his findings.

I used to work with a guy a while back that was pretty comfortable with his money. He had a sweet set of wheels. I mean really sweet. He was an Audi guy and when we were working together, he upgraded to an Audi R8. It was a beast. Seriously, amazing. He took me for a ride one day after work and it went like a dream. And with a $200k price tag, you’d certainly hope so!

As I said, he was pretty comfortable when it came to money. While we were working together he also upgraded his house from a two bedroom apartment in Sydney’s Eastern suburbs to a three bedroom penthouse in Centennial Park about three kilometers from Sydney’s CBD. The place was next level. He had a stylist come in and model the place with lots of nice stuff and it looked great. I remember going to dinner there one night and thinking to myself how much I aspired to have a place just like this. He was living the high life. Or so it seemed…

But the thing is, my colleague wasn’t actually happy. We were once chatting over a Friday after work drink and he told me he was actually miserable. What he really wanted was to be enjoying his money, but he was working so hard that all he could do with his cash was buy heaps of nice stuff. Possessions. He told me that he was actually the most happy years back when he was working in a different industry for much less money. Here I was, thinking that this guy was the measure of success and had everything you could want. But it hadn’t made him happy whatsoever.

I think everyone knows someone like this. That person with all the nice things but that doesn’t seem to be happy. It’s so common in society today. While we know that the big house or the new car won’t really make us happier, for some reason we fall into the trap of pushing ourselves harder to buy and own more and more.

And the story of my colleague is consistent with the findings of Norton’s study. Norton’s research found there is clear evidence which shows that bigger houses and nicer cars do NOT make us any more happy. He has hard data here people! When I heard this I thought it made sense, but Norton was only getting started. The ground Norton covered next started getting really interesting…

Norton went on to talk about his discovery that there are actually some things we can buy that do make us happy. The two biggest expenses that actually fulfil us are experiences, and giving to others.

Why experiences make us happy

This one is my favourite, and I think everyone has been there before. You think about planning your next trip and you might think it through for some time. You’re tossing up in your mind whether to lock this in or whether you should spend the cash. Then, you make the call and book your flight. The only thing that’s changed from one minute to the next is that you’ve committed to the trip and your bank account is a little emptier. But Norton found that once you’ve locked in an experience like this, you get an immediate dose of happiness.

Your trip might be many months in advance, but you still get the boost. Norton measured happiness levels before, during, and after these experiences to test his theories. Any guesses as to when your happiness levels are highest? The answer most likely isn’t what you’d expect.

Norton found our happiness levels are actually highest immediately before an experience. For travel, this is the day or days immediately before your trip. Imagine you’re at work on a Friday before you’re about to go away. You’ve mentally checked out at work and probably aren’t being super productive. You look around the office at your coworkers, and think about how you’re going to be kicking back on a beach or enjoying some new destination on Monday morning while your coworkers are slaving away at the office. This makes you happy. You’re not a bad person for having these thoughts, it just means you’re a human. We can’t help ourselves.

You consider your trip and think about what you’re going to do when you’re away. In your head the destination looks like a postcard. The weather is perfect. You look amazing. Everyone else looks amazing. Your happiness meter spikes up a few more notches.

When you’re actually taking your trip you’re also very happy. You’re enjoying your time away and exploring the destination. But, the weather isn’t quite perfect. The service at the restaurant you’re at isn’t perfect. Maybe you aren’t looking quite as amazing as you pictured in your head before your trip. Your happiness meter comes down a few notches.

It’s no surprise that post-travel, your happiness levels will go down a little more. You get back and start on your commute to work. Happiness down a few notches. You get to work and start wading through your inbox trying to get on top of your work. Two more notches down. Your boss pulls you into a meeting to tell you they’ve brought forward the deadline on the project you’re working on and you realise this is going to mean some long days in the offices. Happiness is on the decline.

If you ever needed an excuse to book your next holiday, there it is. Harvard research has proven that buying your next holiday is going to make you happier!

What about giving to others?

Yes, there is another thing you spend money on to make you happy. Norton also found that giving to others increases our happiness. His research found that by giving, we feel like we’re better people. When you give money to others, you’re pleased with yourself. You want to be a good person and be helpful, and by giving you remind yourself how good a person you are.

A tip: Norton found that giving a large amount only makes us slightly more happy than giving a small amount. So if you want to boost your happiness, you don’t have to break the bank. Giving a small amount will still help others and have a positive effect on your happiness.

So what can you do to take advantage of this research? Book your next trip now, but book it far enough into the future that you can spend plenty of time planning, imagining how good it’s going to be, and how amazing you’re going to look when you’re away. And give a little as well. Help someone else and become that awesome person you want to be, with a little happiness boost as a bonus kicker.

Think about where you spend your money. If you’re heavy on buying ‘stuff’, think about balancing this to spend more on experiences and giving, increasing your happiness at the same time. Understand that how you spend your money is much more important than how much money you spend. Don’t fall into the common trap of pushing to own more.

Experience more and give to others; your emotional state will thank you.