Whether you’re a millionaire or a middle-class father of two, we all make the same mistakes when it comes to money – we think the more we earn, the happier we’ll be.
If you really want to buy yourself a more fulfilling life, it’s not how much money you earn that matters, but figuring out the right way to spend it.
That’s the idea explored in a fascinating new book, “Happy Money: The Science of Smarter Spending,” written by a pair of renown behavioural scientists, Dr. Elizabeth Dunn and Dr. Michael Norton.
“When it comes to increasing the amount of money they have, most people recognise that relying on their own intuition is insufficient, spawning an entire industry of financial advisors,” they write. “But when it comes to spending that money, people are often content to rely on their hunches about what will make them happy.”
That all ends with this book. We’ve combed through and highlighted five ways to change the way you think about money that will make you happier in the long-run.
When we asked New York Times travel writer Seth Kugel one of the biggest mistakes travellers make, he was quick to answer:
'Most budget-saving tips involve either a time or a comfort trade-off. People who research airfares will spend a whole night searching for airfares and setting up alerts and at the end of the day they save $50. To some people, that's worth it and other people would rather watch 'Breaking Bad' and read a story to their kids at night.'
He hit Dunn and Norton's first point right on the head.
When you trade your time for some kind of monetary payoff (saving $20 on a flight or making $100 by working overtime), you could be sacrificing your overall happiness in the process. Now, if you get a high from saving five cents on a gallon of gas by driving 10 miles out of your way, then fine. But most people would be happier spending a little extra money to get home 20 minutes earlier for dinner.
'Research suggests that people with more money do not spend their time in more enjoyable ways on a day-to-day basis,' the authors write.'Wealthier individuals tend to spend more of their time on activities associated with relatively high levels of tension and stress, such as shopping, working, and commuting.'
What could possibly be more satisfying than ditching that old starter home you and your spouse moved into during your broke newlywed years?
Turns out, a lot. When researchers followed groups of German homeowners five years after they moved into new homes, they all wound up saying they were happier with their newer house. But there was one problem: They weren't any happier with their lives. The same was true in a study of Ohio homeowners in which it turned out they weren't any happier with their lives than renters, according to 'Happy Money: The Science of Smarter Spending.'
'Even in the heart of middle America, housing seems to play a surprisingly small role in the successful pursuit of happiness,' Dunn and Norton write. 'If the largest material purchase most of us will ever make provides no detectable benefit for our overall happiness, then it may be time to rethink our fundamental assumptions about how we use money.'
In a world where anything and everything can be yours with a credit card and access to the Internet, it's easy to get swept up by material things.
But if you recognised the fact that you could get more satisfaction out of a $50 dinner with friends than that big screen TV or new iPhone, it might change the way you shop.
'Research shows experiences provide more happiness than material goods in part because experiences are more likely to make us feel connected to others,' the authors write. 'Understanding why experiences provide more happiness than material goods can also help us to choose the most satisfying kinds of experiences.'
To help, here are four questions to ask before you spend money on an experience that may not be as happiness-inducing as others:
1. Does this bring me together with other people?
2. Will this make a memorable story that I will tell for years to come?
3. Is this experience in line with who I am or who I'd like to become?
4. Is this a unique opportunity and something I can't compare to things I've done before?
When you've got unlimited financial resources, it may seem stupid to deny yourself simple pleasures that you've come to enjoy, like new jewelry or an expensive bottle of wine with dinner every evening.
But when you reach that point of material over-saturation, you're killing the potential to make yourself any happier.
'This is the sad reality of the human experience: The more we're exposed to something, the more its impact diminishes,' Dunn and Norton write. 'Knowing we have access to wonderful things undermines our happiness by reducing our tendency to appreciate life's small joys.'
You think if the McRib were always on the menu, people would line up to get a taste every day? Probably not. Instead, try to make things you really enjoy a special treat you only allow yourself once in a while. It will pack a much happier punch.
Like love, the happier you are with yourself, the more likely it is that you'll bring happiness to others. But Dunn and Norton suggest flipping that idea on its head. Make others happier first and you'll bring yourself happiness in the process. It sound obvious, but you'd be surprised how many of us forget it.
'In (a study) of more than 600 Americans, personal spending accounted for the lion's share of most people's budgets,' they write. 'But the amount of money individuals devoted to themselves was unrelated to their overall happiness. What did predict happiness? The amount of money they gave away. The more they invested in others, the happier they were.'
That being said, you may wonder why you don't really feel all that much happier after donating a bag of clothing to Goodwill or cutting a check to the Red Cross. The real happiness comes from seeing your money at work.
We're big fans of charitable organisations that allow donors to see where their money goes in real time. Kiva.org is a micro-lending site that employs a host of workers whose sole job is to write reports on the progress of their borrowers so donors are always in the loop. Dunn and Norton suggest DonorsChoose.org, which also lets donors see their gifts making a difference.
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