pleasure

Raise your standard of living by focusing your spending

Philip Brewer — Tue, 22 Jan 2008 22:48:42 +0000

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.

This article is from Philip Brewer of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Making the most of your guilty pleasures

Philip Brewer — Sat, 04 Aug 2007 21:38:37 +0000

I've been trying to come up with a way to articulate the mental shift from being not-frugal to being frugal. It's not really about wanting to spend less, and it's certainly not about making do with less. A lot of it is about figuring out what you really want, but saying that sweeps a lot of hard thinking under the rug.

It's generally useless to tell people that they should want less stuff--your wants are what they are, not what you decide they ought to be. And yet, many people have made the mental shift I'm talking about. I've seen it described as maximizing your joy-to-stuff ratio.

So, I've been wracking my brain for some clever advice on how to do that. I haven't had much success, but I think I've come up with one thing I do that may help other people: Make the most of your guilty pleasures.

There used to be lots of stuff I wanted. I wanted audiophile audio equipment; I wanted a sports car; I wanted video game consoles and games to play on them; I wanted books in vast profusion; I wanted a really good camera; I always wanted a new computer; I wanted an electric guitar and an acoustic guitar; I wanted good backpacking gear; I wanted a GPS unit and a hundred other cool gadgets; I wanted fine art, good beer, and the complete works of L.L. Zamenhof.

Over the years I got many of these things and got over wanting many of the others. Nowadays I can browse a bookstore and leave with nothing but a list of books to get at the library. When I walk or bicycle or take the bus, I feel no envy for the poor guys stuck in their cars, and I can admire a friend's new car (and even praise it out loud) while I'm thinking, "I'm so much happier with my wife's 17-year-old Honda Civic than I would be buying one of these."

And yet, there are still things I want. Most catalogs I can move straight from the mailbox to the recycling bin, but a few are snares for me. There's one in particular that I can't put down. You've probably seen it. It's office supply porn. I want that stuff. All of it.

I own four good fountain pens, plus a couple of cheap ones. I own innumerable notebooks, large and small, with all sorts of paper for writing and drawing. I have at least eight bottles of ink within reach right now. And yet, when that catalog comes, I can't resist paging through it, thinking, "You know, I I could use one of those, and it's beautiful!"

So, here's my one clever idea: Take delight in the stuff you've already got. When the urge strikes to buy a new fountain pen, I instead get out one of the fountain pens I own and write something with it. In rediscovering the joy in it, I remind myself that I really don't need another one. Starting to do that was a key step in raising my own joy-to-stuff ratio.

Five suggestions for making this work:

Pick a pleasure that speaks to you. There's no point in deciding to make reading the classics your guilty pleasure if you'd much rather be reading romance novels, or playing golf.

Pick a pleasure that's reasonably frugal. If your guilty pleasure were yacht racing, it wouldn't be much help in the frugality department.

Pick a pleasure that involves doing something over having something. Playing a music instrument is a better choice than collecting musical instruments.

Pick a pleasure where the related stuff lasts a long time. Making a guilty pleasure of cooking would be better than making one of eating out at expensive restaurants.

Pick a pleasure that's enduring. It does no good if your pleasure this week is snorkeling and then next week it's sky diving and the week after that it's oil painting.

The deeper goal is to figure out what really matters to you--to get away from the "consumer culture" idea that what makes you happy is acquiring stuff. If you can take pleasure in the stuff you've already got, then you don't need more stuff. And if you can't take pleasure in the stuff you've already got, then more stuff isn't likely to help. Making the most of your guilty pleasures is a tactic for finding your way to that realization.

This article is from Philip Brewer of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: