This post is from staff writer April Dykman. It’s part two of How to Spend Your Way to Happiness. Read part one here.

Last week, we discussed three out of eight key ways that spending money can increase happiness, as found by researchers Elizabeth Dunn, Dan Gilbert, and Timothy Wilson (“If Money Doesn’t Make You Happy Then You’re Probably Not Spending It Right” [PDF]). Through empirical research, they sought to figure out how and why money can buy happiness (and why it usually buys less happiness than most people think).

To recap, the first three were as follows:

  1. Buy fewer material goods and more experiences.
  2. Use money to help others.
  3. Buy fewer expensive pleasures in favor of more frequent, less expensive ones.

Humans adapt to new things quickly, and when the “shiny” wears off, we’re often less happy with the Stuff we bought. Of course, as many readers pointed out last week, some Stuff blurs the line between Stuff and experience. For example, I own a piano, which is Stuff. But learning to play and playing the piano is an enriching experience. (Okay, I’ll be honest, it’s also one of the most frustrating experiences I’ve ever undertaken, but it’s an experience nonetheless!)

We’re also very social animals. Even the anti-social among us are still far more social than most every other creature on the planet. Using money to help others activates areas in the brain associated with receiving rewards.

Today we’ll discuss the remaining five ways that spending can increase happiness, according to Dunn, Gilbert, and Wilson.

Tip #4: Don’t buy extended warranties.
“If the bad news is that we adapt to good things, the good news is that we adapt to bad things as well,” write the researchers. Studies on how people deal with trauma have shown that people are less fragile than they think when faced with tragedy, and they overestimate how negatively it will affect them.

One result is that we are more vulnerable to purchasing insurance we don’t need, such as extended warranties, which are usually overpriced and provide more benefits to the seller than the buyer. Last year, for example, I bought a mouse for my laptop that would relieve my wrist pain. The item was about $30. The insurance I was offered was $8. I’ve had this mouse for almost a year, and I’ve dropped it on a hard surface and the ball has popped out and rolled across the room (to the great amusement of my cat) many times. But it still works just fine.

Essentially, they write, extended warranties are “unnecessary emotional protection.” Why? Our psyches are great at rewriting history to avoid self-blame and regret. Sounds like a negative, but the upshot is that we experience less regret than we predict. We have a built-in “unhappiness-reducing mechanism.”

What’s more, unnecessary insurance not only doesn’t increase our happiness, but it can actually reduce it. In one study, participants were offered a choice of prints of paintings. After making their selection, half were offered a generous exchange policy ― they could swap their print for another at anytime in the next month. The other half were told their choice would be final. Participants predicted they would be equally happy with their choice, with or without the exchange policy, but in reality the ones who didn’t have the exchange option experienced an increased appreciation of their print. The other group liked their selection no more and no less than before.

We buy extended warranties and return policies in an attempt to shield ourselves from buyer’s remorse, but research shows they don’t add to our contentment, and might actually detract from it.

Tip #5: Delay consumption.
Our culture likes to buy now. Credit cards allow us to purchase today with tomorrow’s income. We constantly hear “no money down” and “no payments for a year” offers on TV. Thanks to the Internet, we can make digital purchases instantly.

The researchers found two key ways these changes have reduced our happiness. First, it can lead to shortsighted spending behaviors that often result in financial ruin. I have a friend who spent his way into bankruptcy. In his case, it wasn’t medical bills or some other catastrophic event that wiped him out — it was a luxury car on lease, the newest iPhone, and the biggest LED screen TV on the market that sunk him. The paper cites several studies that show that when people are impatient, they wind up less happy in the end.

Second, buying now and paying later means there’s no anticipation, and it turns out that anticipation is a source of happiness. Sometimes anticipation is an even bigger source of happiness than the even itself. One study showed that people who devote time to anticipating enjoyable experiences describe themselves as happier than those who don’t, and another showed that thinking about future events evokes stronger emotion than thinking about those same events in retrospect.

In addition to anticipation, delaying a purchase also can change what choice you make. Participants in one study were asked to select a snack — an apple, banana, paprika-flavored crisps, or Snickers bar. When asked to pick one to eat immediately, the overwhelming majority chose something unhealthy. When asked to pick one to eat next week, they chose a healthier option.

Our immediate wants are swayed more heavily by emotion, which is why the 30-day spending rule can be so effective against impulse buys.

Tip #6: Consider how peripheral features of Stuff may affect your everyday life.
I sometimes daydream about owning a small house in Mérida, Yucatán. It’s a beautiful city with a rich history, and close to Mayan ruins and gorgeous beaches. But there’s more to owning a getaway in Mexico than sunny beaches and Yucatecan cuisine — navigating property ownership in a foreign country, arranging for someone to look after the place in our absence, dealing with repairs and upkeep upon arriving for our “vacation,” and more.

One study showed that the farther away an experience is in terms of time, the more abstractly people think of it. It sounds romantic when daydreaming about it 20 years down the line, so we overlook important details that will affect our happiness.

In addition, there’s evidence that the daily ups and downs have a far greater effect on happiness than a single purchase — and we overestimate the effect of the event on which we’re focusing (with those rose-colored glasses). Buying the house in Mexico probably won’t have a lasting effect on my overall happiness because, like anything, there will be positives and negatives. There will be headaches and hassles, as well as the joys of belonging to the local community. In the end, I think I’d rather just rent a place if we’re going to stay for an extended period.

Tip #7: Beware comparison shopping.
Comparison shopping is a smart practice that saves you money, but sometimes it distracts us from the attributes that are most important to us. Instead, we focus on attributes that distinguish one option from another.

Someone in the market for a new home, for example, might want something affordable with a big yard for the kids and an open kitchen. But after viewing 20 homes, some of which are probably outside of their stated maximum purchase price, suddenly the homes that fit their original needs aren’t as exciting. They might forget how important a large yard is after being dazzled by an amazing view. Maybe they’ll take out a bigger loan to afford something that wasn’t important to them when they started out.

When comparison shopping for a new camera, I experienced this problem. Suddenly features that I didn’t care about initially became more important because they distinguished one model or brand from another. (Next time I might make a list of what matters to me — actually write it down — and compare models based only on those attributes. Could be an interesting experiment.)

Tip #8: Pay attention to the happiness of other people.
We like to think we’re unique, but studies have shown that the best way to predict what we will like is by seeing what other people liked. From the paper:

…Gilbert, Killingsworth, Eyre, and Wilson (2009) asked women to predict how much they would enjoy a speed date with a particular man. Some of the women were shown the man’s photograph and autobiography, while others were shown only a rating of how much a previous women had enjoyed a speed date with the same man a few minutes earlier. Although the vast majority of the participants expected that those who were shown the photograph and autobiography would make more accurate predictions than those who were shown the rating, precisely the opposite was the case. Indeed, relative to seeing the photograph and autobiography, seeing the rating reduced inaccuracy by about 50%.

In other words, if you are a female and the majority of women in your age group rated a movie favorably, chances are good that you’ll enjoy it, too. It’s worthwhile to check out user ratings and reviews before making a purchase.

Money can buy most of what makes us happy
“Money can buy many, if not most, if not all of the things that make people happy, and if it doesn’t, then the fault is ours,” write the researchers. We are bad at predicting what will make us happy, and often spend in ways that not only don’t increase happiness, but actually decrease it.

Personally, I think the studies about comparison shopping might alter how I seek out the best deal. I very much identify with the distracted feeling the researchers describe, and I have experienced situations where I can’t even remember which attributes mattered most to me. Sometimes I give the whole thing up and don’t buy anything (not necessarily a bad outcome). How might you change the way you buy based on these principles? Have you made a purchasing choice that actually decreased your feelings of overall happiness?

GRS is committed to helping our readers save and achieve your financial goals.Savings interest rates may be low, but that’s all the more reason to shop for the best rate.Find the highest savings interest rate from Ally Bank, Capital One 360, Everbank, and more.