If you can’t meet your basic expenses, having more money makes a life-changing difference. But once you’re no longer struggling to pay for food, housing and healthcare, the relationship between money and happiness begins to break down.

There’s no evidence that billionaires are happier than people who are simply financially comfortable. It’s quite possible that you’re happier than Jeff Bezos. If money doesn’t provide us with the future happiness we imagine it will, how should we spend to maximise our wellbeing?

What types of spending increase happiness?

Buying yourself more time

Being stressed out and overworked is obviously detrimental to your happiness. Spending money on services that free up your time can really help. Options such as a meal kit service, a cleaner or a mowing service are all good ways to buy yourself more free time. Canadian research has shown that paying for ‘time-saving services’ led to greater reported happiness than a material purchase.

Finding flow

Flow is the state of engagement with a task, that sense of being fully absorbed and finding that the time just flies by. The state of flow is highly correlated with happiness, so you should give yourself permission to spend money on any hobby that you find engaging, whether it’s biking, baking or basket-weaving. Similarly, taking a pay cut to work in a job that gives you flow could be well worth it for your long-term happiness.

Building relationships

Good social relationships are better than a high income when it comes to creating happiness. In a paper called ‘Good social relationships are the most consistent predictor of a happy life’, researchers found that social connections are associated not only with happiness, but also with better health and a longer life.

Giving – and giving back

One study found that spending as little as $5 a day on someone else led to ‘demonstrable increases in happiness’. Volunteering is also connected to happiness over time, and it has a positive impact on your mental health, according to a 2020 UK study, and those with the lowest level of wellbeing seemed to get the biggest benefits.

What spending delivers less than we might expect?

Luxury cars

People imagine that driving a luxury car will make them feel happier. But a 2011 survey conducted in the US found that ‘luxury car ownership does not make people happier than frugal car ownership’. Having a car, the researchers noted, was immensely helpful to people’s lives. However, in general, luxury vehicles do not make people happier, for three reasons:

1. A frugal car fulfils our basic needs just as well as a luxury car.
2. We quickly adapt to our new cars and the excitement goes away.
3. When your brother-in-law gets an even better car, that diminishes your satisfaction in your own luxury car.

Material items in general

Experiences, particularly those shared with friends or family, tend to deliver much more long-lasting happiness than any purchases of possessions. Buying something new will tend to provide a temporary boost of positive feelings, but that boost will soon wear off as the item loses its novelty and becomes mundane.

Simple pleasures come with big benefits

Even lottery winners get the most happiness from some of the least expensive pleasures in life. In a 2007 study of UK lottery jackpot winners and a control group, researchers found the lottery winners rated listening to music, reading a book, or enjoying a bottle of wine as the things that made them happiest on any given day. And the happiest people in the study – lottery winners or not – liked to reward themselves with free experiences such as long baths, playing games and swimming.

“While buying sports cars, giving up work, and going on exotic holidays is out of reach for most of us, there are small lessons we can learn from society’s happiest people to help improve our quality of life,” said study author Dr Richard Tunney. “Cost-free pleasures are the ones that make the difference — even when you can afford anything that you want.”