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4 ways your credit card can boost happiness

Are you spending, but unhappy? You're not doing it right

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Can your credit card buy you happiness? Experts say yes -- as long as you spend your money on the right things. And here's a hint: Splurging on the latest high-tech gizmo or to redecorate your family room aren't on the list.

"Money is a tool. It's there to be used to build a better, happier life for you and the people you care about," says Laura Vanderkam, author of "All The Money In The World: What the Happiest People Know About Getting and Spending." "But most people are spending their money on big-ticket items like super-sized homes, expensive jewelry and cars, rather than the things that really make them happy."

So what should you be pulling your credit card out to buy? First and most importantly: Stick to stuff that you can afford. If buying something adds to your debt, Vanderkam says, then it's going to cause more stress than happiness in the long run.  But if you have your spending under control, here are some spending practices that a review study in the Journal of Consumer Psychology found are most likely to boost your happiness level:

4 ways your credit card can boost happiness

1. Buy experiences, not stuff
If you're trying to decide between a Caribbean trip and a new flat-screen TV, buy the plane tickets. A slew of studies have found that people are happier when they buy experiences rather than material purchases.  In one study, for example, more than 1,000 Americans were asked to think of a material and an experiential purchase they had made with the intention of increasing their own happiness. Asked which made them happier, 57 percent said the experience brought them more happiness, while only 34 percent named their material purchase.

Why the difference? For one thing, studies show that we quickly get used to new material goods, so the pleasure we thought they would bring quickly disappears. We're also more likely to second guess those purchases and negatively compare them to other options. Maybe you go to a friend's house and they have a much bigger TV with a better picture; suddenly, you don't feel as good about your new TV.

Experiences, on the other hand, are harder to compare, and the pleasure they bring tends to last. "Experiences are really like a triple whammy for happiness," Vanderkam says. "First, we anticipate the fun of an experience. Then we enjoy experiencing it in the moment, and when it's over, we can remember it."

Danny and Jillian Tobias took that idea to the extreme when they got good jobs in Washington, D.C., after graduating from college. The couple dreamed of traveling the world, so they rented a cheap apartment and saved their money as they planned their adventure. "We still saw people and we still socialized, but what made us most happy was knowing that we were working toward our goal," recalls Danny Tobias. In five years, the couple saved $60,000, enough to travel the world for two years, and "now we'll have those memories forever," Tobias says.

2. Give to others
Imagine you're walking along and a stranger hands you a $5 or $20 bill, along with a note telling you to spend it on yourself by the end of the day. Now imagine instead that the note tells you to spend the money on someone else. It may seem counterintuitive, but researchers who did that on the University of British Columbia campus found that those who spent the money on others were happier than those who bought for themselves.

Other studies have also found that the more giving you do, the happier you are, says Timothy D. Wilson,  a University of Virginia psychologist who co-authored the Consumer Psychology journal study. "Humans are social creatures, and giving is a way to build our connections to others," Wilson says. "Doing things for others also makes us think better of ourselves."

Experiences are really like a triple whammy for happiness. First, we anticipate the fun of an experience. Then we enjoy experiencing it in the moment, and when it's over, we can remember it.

-- Laura Vanderkam
author

Wilson says using your credit card to donate to your church, buying a gift for someone and taking a friend to lunch all fall into this category, but he notes that the lunch date may give you more happiness bang for your buck simply because social connections are also linked to happiness.

3. Buy many small indulgences instead of a few big ones 
Thinking about cutting out your morning latte or your weekly pedicures to save money? Not so fast, say happiness researchers.  When it comes to happiness, frequency is more important than intensity. So while buying a house and buying a latte may both make you happy, Vanderkam says, you can buy a house only every so often, but you can buy a latte three times a week, and you'll enjoy it every time. Lots of small, pleasurable purchases bring more happiness than a big-ticket item you'll quickly get used to.

Research also shows it's best to break up large purchases when possible, because we typically experience the most intense delight during the first few minutes of an experience. In one study, for example, participants predicted they would enjoy one 3-minute massage more than two 80-second ones with a 20-second break in the middle, but it turned out that those who experienced the two briefer massages experienced more pleasure than the other group. Another paper found that participants derived more pleasure from eating two 6 oz. cookies on different days rather than one 12 oz. cookie in a single sitting.

How does that apply to your life? That it might be better to watch one episode per night of your favorite television series DVD instead of all of them in one sitting, or to buy just one or two pieces of clothing in a series of shopping trips rather than a season's worth in one spending spree.

4. Plan ahead (and pay in advance)
Credit cards can be a helpful tool if they're used correctly, but the idea of buying something on credit with "no money down" and paying for it later runs counter to the quest for happiness, Wilson and his colleagues say. First, it leads us to buy things we can't afford and go into debt, potentially ruining lives. And when it comes to happiness, getting an item immediately eliminates the joy of anticipation, a "free" source of happiness, Wilson says.  Research shows you can get a lift simply from looking forward to something pleasurable, even if the event itself ends up not being that great.

So use debit cards when you can, and pay off your credit card balances. Waiting until you have enough cash to buy something will give you an extra boost of happiness when you eventually purchase it, Wilson says.

Vanderkam recommends looking over everything you've spent money on over the past month, thinking about which experiences made you happiest and putting more of them on your calendar. "Try to figure out if there's a way you can increase your spending in those categories, and then trim the items you don't care as much about," she says.

Luciana Bonifazi, 27, a standup comedian in Chicago, went through a similar exercise a few years ago. "It dawned on me that I wasn't getting a lot of happiness out of the designer shoes I was buying, and knowing that I spent so much made me feel guilty and sad," she recalls. "So I cut a lot of that stuff out of my budget and focused my spending on things that put me in touch with family and friends. And I have to say, I'm happier now. I can go back and look at pictures and retell jokes from those moments, and that brings me happiness for months and months to come."

See related: Big purchases can affect your credit score

Published: October 19, 2012


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