If money is said to buy happiness, then why do we sometimes feel miserable even when we're earning that much more?

According to Elizabeth Dunn and Michael Norton, money can definitely make you more satisfied with life; you just need to know how to spend it more effectively.

In their book Happy Money: The Science of Happier Spending, the authors offer several key principles for squeezing a bit more happiness from your dollars.

Dunn, a professor of psychology at the UBC, and Norton, who teaches marketing at Harvard, are serious academics, backing up their views with both their own research and third-party studies from around the world.

It’s Not All About The Cash

One thing is clear: People drastically overestimate the impact of changes in income on their well-being. In one study, they asked American subjects to rank their happiness on a 100-point scale and predict how happy they would be if they made 10 different incomes, ranging from $5,000 up to $1,000,000.

Those who reported earning $25,000 a year predicted that their happiness would double if they made $55,000. But when they measured the actual happiness of these two groups, the change was marginal – less than a 10% increase.

What’s more, once people hit that threshold – which isn’t far off the median income in the U.S. – the happiness return on additional income proved very small.

Perhaps, they propose, the reason that money doesn't make us happy is that we're always spending it on the wrong things, and in particular, that we're always spending it on ourselves.

Here are a few of their suggestions:

Buy Experiences, Not Things

A new Porsche may make you happy for a while, but the glow soon fades. Spend your money on experiences instead like interesting trips or unique meals. They're more likely to be shared with others, whereas material things very often are enjoyed alone.

Such purchases often become more valuable with time – as stories or memories – particularly if they involve feeling more connected to others.

Make Those Things Unusual

Whatever good things in life come our way, we tend to get used to them. Even the most enjoyable experiences eventually become boring. So try to make something as simple as your morning coffee a bit of a treat rather than a daily routine.

Buy Some Time

Time should be used for distinct activities that produce lasting effects on happiness. You won’t enjoy playing with your kids if you're worried about the money you're leaving on the table by not being at the office.

Pay Now, Consume Later

Where possible, Dunn and Norton suggest exchanging "buy now, pay later" for something closer to "pay now, consume later." Not only are you less likely to get into debt this way, but the pleasure of anticipation also provides another source of happiness.

Invest In Others

Although it seems counterintuitive, the single best thing you can do with your money is to spend it on someone other than yourself. Whether it’s friends, family or charities, studies show, most people find more satisfaction in sharing than spending on themselves.

When the authors gave participants in a series of studies $20 to keep or give away, the ones who gave it away felt much happier, a response that was fairly constant around the world and among different ages.

If you don't have time to read the book, here's a TED talk that hits the highlights.

Gordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a consulting firm focusing on retirement readiness. Gordon was a columnist for the Globe & Mail and Morningstar for many years and is also currently a columnist for Investment Executive, Canada’s national newspaper for financial advisors.

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