Most of us work to earn money to fund a lifestyle. We often think that if we just had more money we’d be happier. Well, that depends on what you do with it.

An interesting challenge for banks right now is how they provide us with advice and services that help us manage our money better; rather than simply spend it.

Michael Norton, a professor at Harvard, has conducted some interesting research on how we can use money more wisely and increase our happiness. Here are his five principles:

1. Buy experiences; not stuff. The anticipation and looking forward to the experience usually provides longer lasting gratification than the purchase of an item. And having the experience is interesting and enjoyable. Plus, looking back on an experience usually provides a better memory than the time when we bought a bigger TV.
2. Buy time. It might be your dream to get out of the city and buy a big house in the country. But have you considered you might be buying yourself a two-hour commute? Perhaps a job move might require a drop in salary, but it gives you more time with family or less time travelling – which more than offsets the reduction in income.
3. Pay now, consume later. Credit cards, of course, do the opposite – the instant hit with the bill that follows afterwards. Have you ever paid for a holiday when you’ve booked it and then when it comes time to go it almost feels like it’s free? When you’ve got money, use it to pay for things (or experiences!) you’ll make use of later.
4. Make it a treat. We’ve all got into spending habits – coffee, wine, clothes – but these regular transactions become mundane. They lose the thrill they once provided. The way to get excited about them again is to give them up for a while. Take a week off from coffee and treat yourself next Monday morning. It will taste so good! Making things a treat involves spending less money and you’ll get more happiness out of it when you do go back to it!
5. Spend it on someone else. Spending money on someone else reliably increases the spender’s happiness. And it can be quite a small amount to get a big reaction from the recipient, whether that’s a loved one, a donation to charity or some other altruistic expenditure.

These ideas come from Michael Norton’s book with Elizabeth Dunn, ‘Happy Money‘. He’s now focused on working with companies to help them educate and encourage their employees how to get more out of their money. As an employer, creating happier employees will have a direct impact on retention, engagement and customer service.

For some organisations – banks in particular – doing the same with customers could have huge benefits. Helping customers become better with their finances helps make them better, lower risk customers, more likely to take out higher margin products in future.

So it turns out money can buy us happiness, just not in the way we expected.