Why not all spending is created equal
There are a lot of personal finance “experts” out there who will tell you that the key to making money is to stop spending so much of it. They’ll tell you to stop buying that coffee, and cancel that trip if you want to save for retirement.
But I don’t believe in scolding people who spend too much money. I think that there are certain things that you should think about spending more money on, like experiences.
Maybe it’s because I spent most of my childhood stuck in small towns, but I’ve always loved to travel. Right now, I spend my time traveling the world and educating others about the FIRE (Financial Independence, Retire Early) movement with my husband, Bryce. But back when we worked full-time as computer engineers, we’d plan two vacations a year to Europe or the Caribbean, with the bill for each averaging $2,500—not chump change, by any means. And I had a great time, every time. We looked forward to our next vacation, reading travel guides and watching No Reservations. And then the day would come, and we’d be like, “Wow! We’re in Rome!” Afterward, we’d go through our photos over and over and compare notes of our warm fuzzy memories. It always felt worth it.
Around that time, I started to notice a strange pattern among my friends and family. The more stuff people owned, the unhappier and more stressed they tended to be. Conversely, the less stuff people owned and the more they spent on experiences like travel or learning new skills, the happier and more content they were. Possessions give you an initial burst of dopamine that fades, causing you to chase that high continuously. People who spend on experiences get way more bang for their buck.
One-off splurges can result in additional expenses.
I have a friend who collects art, but it’s never just about the piece; he also has to pay for it to be framed, reinforce a wall in his condo, buy special lights to display it the way the artist intended, and insure it. Every time he finds out about a new expense, he flies into a rage about the scuzzy vendors “taking advantage” of him.
Not all spending is created equal. Unless you are in truly dire straits, day-to-day expenses like rent, groceries, heating, electricity, etc. don’t tend to bring you great happiness or unhappiness. At a certain point, they blend into the background. These are baseline costs.
Spending increases your happiness when it brings something new to your life, whether that’s a possession or an experience. These are splurges. However, that happiness is temporary for possessions, but not for experiences.
Some spending decreases your happiness. These expenses—like insurance and maintenance—are necessary when you own things. Nobody enjoys spending money on a flooded basement or a flat tire. They are unexpected costs.
When I was growing up, I thought the key to happiness was more stuff. If one can of Coke could make me so happy, then thirty cans of Coke should make me thirty times as happy. But the truth is, if someone had given me thirty cans of Coke, I would have panicked and started digging a hole under our chicken coop to hide my fortune from my neighbors. Then I would have sat on my porch, forever on guard for anyone who looked suspicious to keep them from murdering my family and me to steal my reserves.
That’s the problem with possessions. You get the initial bump, but then it fades, and if that possession is expensive, you worry about it. If it breaks, you have to spend money to fix it. Possessions convert splurges into unexpected costs.
Think of my friend the art collector. His initial purchase gave him a burst of happiness. But over time, that happiness faded. When the expensive purchase caused him to spend money to insure and maintain it, the spending didn’t make him happy. It had the exact opposite effect.
But now let’s look at someone who spends money on experiences. Since every experience is different, your happiness spikes each time. Not only that, once the experience is over, you don’t own anything, and as a result, you don’t need to protect it. So, you don’t get that conversion of splurge-to-unexpected cost spending.
Not all spending cuts will hurt
This realization lit up my brain with possibilities. If all spending isn’t created equal, does that mean not all cuts in spending will hurt? If certain expenditures don’t increase your happiness, doesn’t that mean eliminating them won’t affect it one way or the other? If certain expenses decrease your happiness, wouldn’t removing them make you happier?
Everyone thinks budgeting is like being on a diet. If you spend less, you’re less happy. But slashing your spending doesn’t always decrease your happiness.
One summer in Toronto, the Transit Commission, which runs the subways, decided to go on strike. For weeks, the city’s subway system ground to a halt and TV stations filled with angry Canadians (it doesn’t happen often, but when it does, watch out!). Rather than pay for taxis daily, I decided to jog to work. To my surprise, it didn’t take as long, nor was it as difficult, as I’d imagined. I even lost weight and was able to cancel my gym membership. So, when the TTC got back online, I continued jogging to work, saving almost $200 every month that summer.
Not all spending is created equal. And as a result, not all cuts are created equal. Some cuts hurt deeply. Others don’t hurt at all.
This article is excerpted from from Quit Like a Millionaire: No Gimmicks, Luck, or Trust Fund Required. It is reprinted with permission from TarcherPerigee, an imprint of Penguin Publishing Group, a division of Penguin Random House LLC. Copyright © 2019, Kristy Shen and Bryce Leung.
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