The Science of Spending: What Really Makes Us Happy?

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Money HappinessWhat if right this moment your salary doubled in size?

Imagine the possibilities: twice as many meals out, twice as much money for retirement and twice as many weekend getaways. Or heck, maybe that beach house you’ve always wanted would now be within reach.

It’s easy to let your imagination run away with you, but would all of this bonus income add up to twice as much happiness?

While most people would respond with a resounding yes, they’d be wrong: A new study conducted by the authors of the forthcoming book “Happy Money: The Science of Spending,” proves it’s not true.

According to the study, Americans anticipated they would feel twice as happy if their salaries more than doubled. But when researchers polled participants at two different income levels, they found that people making more than twice as much were only 9% happier than those making the original amount.

More than double the salary, but less than 10% more bliss?

No, it sure doesn’t seem to add up, so let’s crunch the numbers to find out why.

The “price of happiness” has made news before—it’s how much people need to make per year to feel happy and fulfilled. According to a recent Marist poll, that magic number falls somewhere between $50,000 and $75,000.

Respondents to the poll who made more than $50,000 were more satisfied with their lives when it came to factors ranging from friends, to health, to how they spent their time. More than general lifts in salary (like getting a raise from $35,000 to $40,000, or even $60,000 to $65,000), that specific number was the happiness tipping point: “$50,000 is the mark where you start to see significant differences,” researcher Susan McCulloch told LearnVest.

So if a mega-raise isn’t necessarily the key to bliss, or you’re already making more than $50,000, what can you do to be a happier version of you?

Three Financial Habits That Lead to Happiness

It’s not surprising that we live in a culture where more is almost always seen as better: more money, more friends, more square feet in your house. But what is shocking is that the study’s authors, Michael Norton and Elizabeth Dunn, found that when it comes to spending and happiness, less is the key to success.

In fact, they identify three key factors linked to increased happiness.

1. Underindulging

Call it the effect of diminishing returns: It turns out buying less for yourself can actually make you happier. In fact, Norton and Dunn coined the term “underindulgence,” or indulging yourself less frequently than you normally would.

Basically, once you have a lot of something (say, new shoes) or engage in something frequently (like your flash sale habit), the joy you extract from each purchase lessens over time. That’s why the first bite of cake tastes way better than the 20th… you’re used to it by that point.

However, if you indulge yourself sparingly—thereby lowering your baseline spending, and increasing your joy each time you buy—you will feel happier overall. For more on this, see how to splurge right.

2. Seeking Out Experiences

The researchers also recommend investing in experiences rather than things. In other words, it’s better to cut back on clothes or electronics and save up for a vacation or spa day with friends. That’s because the money you spend will be more meaningful to you.

You can also try cutting down little spending habits, like your morning latte, and putting that money aside for a larger, more exciting splurge down the road. (See our “This or That” calculator to determine how little tweaks can lead to big savings.)

This goes hand-in-hand with learning to savor. Think about the last vacation you planned: It wasn’t just the getaway you enjoyed, it was relishing the idea that you would get away—and reliving the experience once you got home. You can do the same (for free!) by relishing the positive feelings from any good experience, whether it’s your special afternoon cup of tea or really absorbing a particular painting at a museum.

For more on how to consciously anticipate an experience, read our guide to savoring.

3. Giving to Others

As Dunn and Norton put it, “Using your money to promote underindulgence requires a shift in behavior … But another scientifically validated means of increasing the happiness you get from your money is even more radical: not using it on yourself at all.”

When their study participants were given $20 to keep or give away, the ones who gave it away felt much happier. This response appears to be universal and innate: The researchers found similar results around the world and among different ages. Even young children, notorious for being bad sharers, were happier giving away goldfish crackers than enjoying them solo.

In order to maximize your happiness, try giving in smaller amounts more frequently, rather than, say, an annual lump sum to your favorite charity, so you’ll get a spike in happiness each time. If you have trouble working giving into your budget, we can help with that.

To sum up? We think this quote from the study’s authors says it all: “What we do with our money plays a far more important role than how much money we make.”

  • JoAnn Crouch

    Soooo….how are the rest of us suppose to get happier?? Thanks to this wonderful economy I went from $40K a year to $26K a year and believe me I am a WHOLE LOT less happy. I have never even SEEN $50K a year. Yeah, that would make me REALLLLLY happy! But since I am 56 (no one is hiring “old” people) I guess that is not going to happen either.

    • Reademmy

      I thought the same thing.  As a teacher in OK, after a Masters Degree and 34 years of teaching I was barely above $40,000.  Now as  a retiree……..oh my gosh.  I must be miserable !!!   :)

      • Brianl

        I’m a 3rd year teacher in California making 60k a year and couldn’t be much happier. A raise wouldn’t change much

  • JoAnn Crouch

    Soooo….how are the rest of us suppose to get happier?? Thanks to this wonderful economy I went from $40K a year to $26K a year and believe me I am a WHOLE LOT less happy. I have never even SEEN $50K a year. Yeah, that would make me REALLLLLY happy! But since I am 56 (no one is hiring “old” people) I guess that is not going to happen either.

  • ranavain

    I always wonder how much those surveys take into account previous socio-economic status. Like, I bet people whose parents were poor will feel happier making $30,000 a year than someone whose parents were comfortable and they are making $50,000 as adults. 

  • ranavain

    I always wonder how much those surveys take into account previous socio-economic status. Like, I bet people whose parents were poor will feel happier making $30,000 a year than someone whose parents were comfortable and they are making $50,000 as adults. 

  • Booth_sylvia

    I would add another thing to this list: getting a deal. The sense of happiness and satisfaction from a purchase increases considerably when we know that we got the best possible price…for example buying a designer item of clothing at a consignment shop (for next to nothing) rather than spending a riddiculous amount of money for a similar piece off the rack….etc. This requires research and savvy…and part of the pride is in having not only saved money and “beat the system”, but in having come to this result through our own ingenuity :)

  • Jenluksich

    I definitely believe that buying every so often is so much better than buying all the time. I really enjoy saving up for a couple months to go buy not 1 but 4-5 outfits at one time.  Also, I definitely believe in spending your money on activities and events that add pleasure and fun into your life. I recently got into participating in 5K runs. It’s a double hitter, it’s very enjoyable and the money goes to benefit charities. 100% satisfaction! 

  • Sandy

    I agree conceptually, but think that salary numbers need to be adjusted for regional differences in costs of living.  $50k/year in the San Francisco Bay Area barely covers housing and food, while it may supply quite a comfortable living in Minneapolis.

  • Srosenfeld

    Loved reading the article….so true about buying shoes….I tried to   hold back …until I visited the new shoe salon on 5 at Barneys…your piece ended with the perfect quote…enjoyed this article thoroughly !!!

  • Lou Ann

    I think we should also strive to be content with what we have.

  • Hdbabe49

    They say “money doesn’t buy happiness” so I have learned it is what you do with it that can change your attitude. Once I retired last year not because I had the money to retire but because I was needed to take of disabled family members. And my income went down from $33,000 a year to $13,000 a year.

    I thought my happiness would come from being my own boss & I am helping some one but that wore off fast. It came with a lot of drama @ the cost of draining my energy & time.

    I have used up all my savings 2 be able to pay all my debts off & now I am just existing. Stressing about it daily. I am now a 63 year old woman liking for a part time job & hope that will help me feel less worrisome!

    Retirement in other words has NOT been fun so far and I got sick from stress. And life goes on …….

  • http://fitorama.wordpress.com/ Lauren Lever

    Trying to not shop so much is a challenge, when you don’t turn to food or drinking (also a source of frivolous spending) to comfort, it can be easy to look for peace of mind with “retail therapy”. I find it is just best to avoid the favorite retailers/etailers in my spare time.