Raise your standard of living by focusing your spending

by Philip Brewer on 22 January 2008 14 comments
Photo: Philip Brewer

Are you tired of reading the same frugality suggestions? I'm talking about the repeated exhortations to eat out less, turn off your cable, and stop buying expensive coffee drinks. Tired as they are, these suggestions keep showing up for a reason: they're examples of the key insight that the best way to raise your standard of living is to focus your spending on the things that give you the most pleasure.

I'm not even going to bother listing the things I've quit buying because they didn't give me as much pleasure per dollar as the things I do still buy. Every one is either something where you agree with me (and therefore have already cut your spending on that) or else something where you disagree (and would considering cutting that spending a drop in your standard of living)--or it's an item where you really haven't thought about it much.

My suggestion is that you think about it.

Know Your Spending

Pull out the past few months credit card bills and your check register or checking account statement. Make a quick list of everything that you've spent money on in the past three months. (If you already track your spending, you can skip this step and use the data you've already got.)

Now, rank every purchase in order by how much pleasure it gives you right now to have spent that money. If it gave you great pleasure at the time and you remember that pleasure fondly, go ahead and give it a high ranking. If, on the other hand, the pleasure it gave you was transitory, go ahead and put it somewhere in the bottom half of the list.

Now, rank the list a second time, this time by dollar amount.

Are those two lists the same? They ought to be. Anything that you're spending big bucks on ought to be near the top of that list. If it's not, then you probably want to make some adjustments.

Adjust Your Spending

There are, of course, a thousand impediments to actually adjusting your spending to bring it in line with what gives you the maximum pleasure. Most of them have to do with spending that's "required" for one reason or another.

Taxes

If you're accurately and comprehensively tracking your spending, you'll probably find taxes near the top.

There are plenty of things you can do to lower your taxes, but I'm no tax expert, so I can't help much there. Let me just suggest that an alternative way to increase the value received for money spent is to become politically active.

Especially at the local level, it's possible to have way more influence over how this money is spent than you might imagine. Just becoming informed about how the money is spent can make a difference. (To the extent that it's well-spent on programs that you support, you can feel better about it. To the extent that it's ill-spent on programs that you oppose, you may be spurred to become politically active.)

Interest on old debts

I don't expect that you're getting much pleasure from the interest on your credit card debt (or even the interest on your student loan or mortgage debt).

Like with taxes, this is one of those things that you're pretty much stuck paying. Unlike with taxes, though, there's a light at the end of the tunnel--get your debt paid off, and you don't have to pay interest on it any more.

In the meantime, make sure you're getting the best terms you can. On the other hand, don't let the fact that "interest on debt" is right at the bottom of your list in terms of satisfaction prompt you to spend more time on this item than it's worth. Unless you've gone through this exercise recently (and carefully), there'll be plenty of other places you can cut spending on things that don't bring maximum satisfaction.

Rent or mortgage

This is a special case of "required," in that it tends to be expensive and difficult to change what you're spending on lodging. You can potentially change your rent every year--if you can face having to move. With a mortgage it's even worse--you not only have to move, but you have to sell the house you've got (never easy or pleasant, and especially hard just now).

Still, housing is probably one of your top three expense categories--you ought to be looking at that list of where you're money is going and saying, "Yeah--I'm so glad we're paying $X a month on this place--it's worth every penny." If you're not, you definitely want to make some adjustments. If you don't want to move, consider getting a roommate or taking in a boarder. If you are willing to move, there are many options for cheaper housing besides just moving into a slightly cheaper place (although that's worth considering too).

Other things

The most bang for the buck comes up at the top of the list--that's where the money is. But it's still worth working your way all the way down the list. There's plenty of spending at the bottom.

Look at each line and ask whether that item gave you more pleasure than the items below it. If not, spend less on it going forward.

Be especially cautious of items where you're inclined to answer with weasel-words along the lines of "Well, I deserve X." If looking back on your purchase of X you remember the pleasure it gave you fondly, then just rank it where it goes in the list. If not, then spend less on it so that it moves down the list to wherever it belongs.

Be cautious as well of the items where you're answering with, "Well, it's important to the kids (or the wife or the husband or the in-laws or whoever)." If "whoever" is a member of your household, then he or she ought to be going through this exercise with you, and can speak up his own self. Otherwise, I suggest that you're not doing yourself any favors by taking other people's interests into account when you set spending priorities.

Tactics

That's my suggestion for raising your standard of living: focus your spending on what gives you the most satisfaction. To that end, here are a couple of small tactical ideas that might be useful.

Buy quality

Plenty of things will please you in the first minutes or hours after you purchase them, but the real test is whether you're still as pleased with it weeks and months later. To that end, remember:

  • High quality items that work well and last a long time are usually the better choice.
  • Superior experiences are often worth the extra cost.

Take advantage of deals

Whatever you buy, the satisfaction-to-cost ratio improves when you pay less. There's a whole section of Wise Bread devoted to deals and coupons.

Using deals effectively depends on have a clear understanding of what you want to buy, what it's worth to you, and what a typical price is. It's no good to buy stuff you don't need, just because it's cheap. And you certainly don't come out ahead by buying something that's supposed to be cheap but that actually isn't.

Matching Your Lists

When your spending matches your priorities, the two lists--one ranked by spending, one ranked by pleasure--are just the same.

It's really pretty satisfying to make that happen. It's because of the power of this idea that so many personal finance writers try to get you to keep track of your spending. They all know from personal experience that going through the exercise produces surprises--useful surprises--for everyone.

Short of actually tracking your spending every day, though, this "snapshot" version (looking through your last three month's spending) can give you a lot of the same information.

Putting every dollar of spending where it gives you the maximum satisfaction is the most powerful tool there is for raising your standard of living.

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Myscha Theriault's picture

As usual.

Guest's picture
Geng

If I were to do what you suggest, at the top of my list would be various medical expenses. Spending that money doesn't give me pleasure, but I recognize the need for it because I want to get well. How does this fit in?

Philip Brewer's picture

Pleasure and satisfaction come from many sources. I can't think of anything that would make me happier than getting well again if I were sick. Since humans can reason, they can connect the money spent to their hopes for the future.

As another example, giving their kids the best possible start in life--paying for the best schools, supporting them though college--is also a great source of pleasure for many parents. Even though the parents don't go to classes themselves, that doesn't mean that they don't get satisfaction out of it.

Guest's picture
jdp

This is the best explanation I've ever seen on this topic! Perhaps it will make people rethink about *why* they are looking into frugality or whatever change they seek.

Guest's picture

I really like this idea. If I were to do this exercise, I suspect that "eating out" would be the #1 overspent category. Yeah, it's nice not to cook, but is it really $50 nice? Doubt it...

I also really like the idea of getting more pleasure from your tax dollars by getting involved in local politics. Now I need a post telling me HOW to get involved in local politics!

~Q

Guest's picture

Here's my take on how to get started in local politics. The first thing to do is to start paying attention: read the newspaper, learn the system of government, and come to grips with the issues. After that, I would argue that you have a choice: you can find the committees that have oversight over what you're most interested in and start volunteering there or you can identify a candidate you want to support and start working on their campaign. The goal is to know and become known to the people who make the decisions that you want to influence. As you become more well-known, you can cautiously use your influence to try to affect the decisions you are most concerned about. Eventually, if you aren't a crazy person and you stick around long enough, people will convince you to take leadership positions in the committees or to become a candidate for elected office.

The details depend a lot on your local community. In some places, you could probably get a small group of people together and try to run for elected office immediately. In my community, those people almost never succeed -- and even trying is often considered a mark of political naiveté.

Perhaps the single most important thing I would emphasize would be to listen. Listen carefully to what people are saying and be cautious to act precipitately or to align yourself with any particular faction too soon. Often, there are political undertones to any proposed action and its often hard for a beginner to understand who's sacred cow is going to be gored by any particular change.

A final suggestion is that you look for ways to volunteer to take on some chunk of the committee's work: offer to make copies or be secretary or something else that no-one wants to do. People learn who you are faster and you can quickly become indispensable.

Good luck!

Guest's picture
misty2

I agree you should get as much for your tax dollars as you can and enjoy it.

Guest's picture
MJB

a really nice commentary on/extension of Dacyczyn's "WOW factor."

Guest's picture
PlantingOaks

We don't do this formally for everything, but it is a gut check when we spend 'recreation' money.

Will I get as much enjoyment from this dress as I would from a new video game (we're tech nerds)? From 3 movies? From some new crafting supplies? From a dinner out?

It works on big purchases too - would I be happier with the fancy car, or with the cheaper one and a really big t.v? Even if you don't plan on buying the new t.v, fixing how much a given sum of money is worth in 'happy points' makes it easier to compare the value of differently priced options.

Sure the system isn't as well calibrated as it could be, but it's a lot of results for your effort.

Also, I'm not sure the method in the article works in an absolute sense. Say the thing that brings you the most pleasure ever is chocolates. Spending thousands of dollars to get truckloads of chocolate probably isn't going to make you any happier than spending twenty dollars. Enjoyment has a saturation point, after which you have to find a less efficient means of making yourself happier.

Philip Brewer's picture

It's certainly true that a lot of the best stuff faces diminishing returns. One of the best purchases I ever made was my bicycle, but I'd get very little benefit from buying another one every month.

But, when you think about it, there's actually a huge payoff in that: The very best stuff is cheap. The amount that it takes to provide maximum satisfaction is very reasonably priced, and there's no reason to ride the curve down to the point of merely adequate satisfaction.

I guess you could find yourself in a situation where you enjoyed chocolate so much that it ranked up near the top of your "satisfaction" list--just under food and rent, let's say--even though you only spent $15 a month on it. Clearly the answer to that circumstance is not to say, "Gee, I'd better spend more on chocolate!" But you might look a bit closer at the line items below it. Why are you spending $40 a month on internet access or $30 a month on clothing when neither one provides as much satisfaction as $15 a month on chocolate?

The easy answer to "Why spend that much on X" is often "Because it costs that much." (Especially for things you have to buy, like insurance, and for things where there's just one price no matter how much you use, like internet access.) But once you get past the easy answer, there's often room to make adjustments. You can shop around, decide to share things with your neighbors, find a different way to get things done, etc.

Whenever something shows up higher on the ranked-by-cost list than it does on the ranked-by-satisfaction list, that's a clue that you've found a place where some serious investigation into possible adjustments is warranted.

Philip Brewer's picture

It might be worth mentioning at this point that Steven Brewer is my brother. I asked him to weigh in on the topic of becoming active in local politics, because he knows more about it than I do.

Really, though, it's like networking with any other group:

  1. Find people who are working in the area that you're interested in.
  2. Contribute to their work. (This could well be in the form of performing low-skilled tasks, especially if you don't have the appropriate skills yet. But it could also be in the form of doing stuff that they'd be doing if they had the skills or the time.)
  3. Participate in the group discussions about what needs to be done and what the priorities ought to be.

There's always way more work to be done than there are people and time to do it. If you're one of the people who's contributing, you'll come to have some say in what the priorities ought to be.

It's easy to come to have considerable influence, just by helping out. You don't necessarily need to get elected to anything.

Guest's picture
WG

I agree with this article.

My paradox is this: until I made enough money to be in a situation where I could choose what to purchase, I could choose not to waste money on stuff I didn't need. I had to try out "the good stuff" to know what it was like. Then, I had to have enough money (or know I could make enough money) where not wanting it wasn't "sour grapes".

I had to own enough stuff to know that I owned too much.

The same goes for community involvement. Until I could choose to cut back on work, there wasn't enough time to participate in politics (which is a lot of work). This speaks to comments in another thread where another Guest said folks should work two jobs if their job didn't pay enough -- if you're working all the time, you can't participate in your community or in the democratic process (except through voting).

Philip Brewer's picture

There are some things that you can only learn from first-hand experience. But, to the extent that you can learn stuff without first-hand experience--from your parents and teachers, from watching your friends, from seeing your neighbors, from the TV and the news and the internet--there's a huge payoff in short-circuiting the costs you'd have to pay for first-hand experience.

This is where culture can pay off big. Culture can help you know that too much is more than you need without you having to actually buy too much stuff before you know. But you need to go with the culture of, let's say, Benjamin Franklin, rather than the culture that says "borrow whatever it takes to keep up with the Joneses, and hope to luck out with a winning lottery ticket."

Of course, it's never just one thing. You can only learn so much from your cultural background and your upbringing. At some point, you have to give it a try yourself. Because, sometimes, your culture and your family are wrong.

Guest's picture
Annie

My husband and I aren't able to run for office right now, but we've found that simply attending the regular Board of Aldermen meetings is a great way to 1) meet the local politicians and 'people of influence' 2) firsthand hear their views on local issues 3) participate by speaking to them on topics that interest you (either during or after the meeting) and 4) find the committees, etc., that need help the most.

Great article. When I forget this principle, I am reminded by a severe case of buyer's remorse for whatever unnecessary, stupid purchase I've just made. Regret has got to be the opposite of pleasure when it comes to purchase satisfaction!