Raise your standard of living by focusing your spending
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.
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).
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.
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.
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.