In their article entitled “If Money Doesn’t Make You Happy Then You Probably Aren’t Spending It Right,” researchers Elizabeth Dunn, Daniel Gilbert (author of the bestselling book Stumbling on Happiness), and Timothy Wilson examine ways we can better use money to increase happiness. The fact is that money can buy happiness to a degree, but not as much as we might think—and whether it does depends on how it’s spent.

Here are the main points:
(Read the full article here.)

Use your money to buy experiences, not things.

Spending on an experience, like a vacation or a class, will bring more happiness than spending on a material purchase like clothing or a new car. The reason for this is that while material things make us happy initially, we adapt rather quickly to them so that over time they no longer bring us as much pleasure or excitement. On the other hand, we feel happy from anticipating and remembering an experience (in addition to enjoying the experience itself), making adaptation occur more slowly.

Help others.

We’d all probably be happier if we spent money on others, rather than on ourselves. This is tied largely to the fact that spending money on others involves making a social investment, and strong social ties increase happiness.

Spend on many small pleasures rather than one (or a few) large one(s).

We adapt very quickly to pleasurable things, so spending on many small pleasures will produce less adaption than spending on a single large purchase. For example, several weekend vacations sprinkled throughout the year may provide more happiness than one three-week vacation.

Avoid buying overpriced and unnecessary insurance and extended warranties.

The root of this approach is that we adapt better than we would expect when we experience bad circumstances in life. The same can be said of consumer products. If a product breaks or ends up being a disappointment, we get over it. We adapt to our circumstances, and material purchases are no exception. In the end, an extended warranty might not be worth the high price tag.

Delay purchasing things you want.

This is rooted in the principle that anticipation brings happiness. Thinking about a future purchase may actually bring more pleasure than actually buying the desired item. Furthermore, delaying consumption causes people to make better choices.

Think about the details of a purchase.

We tend to look at circumstances (and purchases) in a broad way, forgetting about the details. For example, buying a large house in the suburbs may seem like a better deal than buying a similarly priced cottage in the city—if you don’t factor in the hour-long commute. In the greater scheme of things, the commute will probably have a greater day-to-day impact on happiness—in a negative way.

Exercise caution when comparison shopping.

Comparison shopping can lead us to look at irrelevant differences between products, resulting in poor decision-making and a purchase that may be less than desirable. It leads us to focus on factors that seem important while shopping, but may not matter as much once we actually own or consume the product.

Look at the purchases of others to determine what will make you happy.

The best predictor of what will make us happy is to look at what makes others happy, and this includes what purchases make other people happy.