If you've ever bought a lottery ticket, you've probably thought about how happy you'd be if you hit the jackpot.
Think again, says Michael Norton, a Harvard professor whose book on the subject, Happy Money, is scheduled to be released in May. "A large windfall simply doesn't guarantee happiness," he says.
Researchers like Norton say the old adage is mostly true: Money can't buy happiness. But studies show that spending strategically can make you happier. Here are some of Norton's tips for maximizing the joy your money brings you.
1. Consider the opportunity cost
Norton cites the work of Shane Frederick, a researcher at Yale who found that consumers often don't think about what they're giving up long-term in order to make a given purchase right now. For example, "If you ask someone in the beginning of the year, 'Do you want to spend $5,000 on coffee?' most people will say no," Norton says. "But people make those types of day by day purchases without thinking of the larger implications."
All that coffee could mean leaving no room in the budget for vacation or spontaneous charity—expenditures that could contribute more to your happiness than a daily coffee habit.
2. Pay down debt
Norton notes that carrying debt takes a huge psychological toll. His advice: If you have consumer debt, focus on paying it down rather than buying more stuff, or even saving for a rainy day.
3. Spend on others
Whether it's treating a friend to lunch or buying your mother-in-law a birthday present, the act of giving pays big dividends. Social scientists have proven that spending on others makes you happier than buying for yourself. "It might seem counterintuitive: Getting stuff for yourself feels great!" Norton says. "But it's true. One person in our study even said that spending on others provided a 'warm glow of happiness.'"
4. Donate to charity
The same is true for donating to charities, Norton adds. In fact, his analysis shows that people who donate money regularly are happier than people who don't.
Not only does giving boost your happiness, it also makes you feel richer. "If I've got enough money to be sharing with others, it's sending a signal to my brain that I am making a lot of money," he says.
5. Buy experiences, not things
When it comes to spending on yourself, researchers have repeatedly found that experiences are more likely to make you happy than possessions. To maximize your happiness, buy concert tickets instead of a stereo, or cooking lessons rather than a new set of dishes. The odds are good that you'll cherish the memory of the experience far longer than you'd enjoy the additional stuff.
The bottom line: It's not how much money you have but what you do with it that counts. Developing spending habits that connect you to others and create happy memories, that's the key to feeling fulfilled, Norton says.
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If you’re cutting it close with your finances every month, or not setting aside anything for your future, then your routine could use some tweaking. Identifying the financial habits tripping you up is the first step to moving toward life’s bigger goals.