How to Spend Money
When people talk about personal finance, they usually want to know how to save money. It’s a little odd that people would be more interested in saving money, i.e. how NOT to use money, then how to use it.
Money is a tool. It’s more important to know when to use tour tool than when NOT to use it. So let’s take some of the stigma out of spending and talk about how to spend money to create a better life.
The Problem With Focusing on Saving Money
Too often, when we think about spending money, we are really thinking about shame. Somewhere we fall into the trap of believing that saving money is always superior to spending. If we could just figure out how to prioritize saving money, then we can spend on whatever we want, right?
Well, it’s not true that savings is a get-out-of-free card for spending. We will cover that later. But first, let’s first talk about how focusing on saving money can be a trap.
Every day, we are inundated with advertisements. Stores make it seem like shopping is a game of how to get the most stuff for the least cash. But if you go to the store to get pants, it doesn’t matter how much money you “save” on shirts, if you don’t get the pants. If we measure our success by the stores’ metric of “saving money”, then we feel smart, but we still are caught without our pants!
If we go the route of saving by cutting out costs entirely, that also poses problems. People have limited self-control. So when we cut out lattes, gym memberships, and/or taxis, we might just wipe ourselves clean of impulse control. At some point, our discipline gives up and who knows what risky financial decision we will end up with next.
What if We First Focused on Spending?
It’s hard to start saving money if you don’t first know what you want to spend money on. It’s like that classic rocks, pebbles, and sand analogy. The idea is, if you want to fit rocks, pebbles, and sand in a jar, you have to put the rocks in first, then the pebbles, then the sand. If you change the order, it won’t work.
It’s a metaphor for how we allocate our resources. Focus on the biggest things first and then the smaller things will fit in. But if you focus on the little things first, you crowd out the big things.
Focusing on little things like sales might mean you end up with dozens of “great deals” that are insignificant by themselves but in aggregate can preclude you from fitting in those big purchases that you really wanted – the cool trip, early retirement, the big career pivot. It might make more sense to figure out what your rocks and pebbles are, and then let the sand fit in around it.
The Fun Scale
You may say, I understand that little purchases can add up and preclude the big purchases. But I can’t buy every big purchase I want and expect all of that to fit in my budget. True. One must start by being mindful with big purchases. So how does one go about figuring out what the big purchases should be?
I’m glad you asked. But first, some seemingly unrelated definitions.
My friend once taught me about the two* types of fun.
“Type 1 Fun” is fun that is enjoyable in the moment. Like laughing with your friends and family or enjoying really good food. It’s the type of fun that you don’t have to twist your arm to get into.
“Type 2 Fun” is fun, but the enjoyment happens primarily in retrospect. At the time of the activity, it may be stressful, scary, or arduous, even painful. And needless to say it might be difficult to get you started on this type of fun.
I like to think of Type 2 Fun as the activity that gets you to the goal. Some good analogies are training for a marathon or being a beginner. The “during” process is trying (which is why many people don’t start) but the end result is so amazing that you utilize your best revisionist history to tell yourself it’s not so bad. (I mean, I ran 2 marathons so I know a little bit about revisionist history). There are lots of obstacles in the beginning of Type 2 Fun, but in the end, you wind up with something that might even be qualified as Type 1 Fun.
Why You Need Two Types of Fun
Life needs both kinds of fun. If you only had Type 2 Fun, life would be a slog. If you just have Type 1 Fun, you’ll never have a sense of achievement and you might never get to diversify your Type 1 Fun by starting and learning new activities.
Type 2 Fun, and going through the slog, actually has a ton of benefits. It improves your self-esteem (“hey it was hard, but I muscled through. I’m awesome!”). Further, often the friends you meet while slogging have powerful staying power (my friend tells me that that’s why you keep so many of your friends from your first or worst jobs. You need your war buddies). And the more you slog, the better you get at slogging in the future. You become less afraid of trying new things, meeting new people, putting yourself out there, pushing yourself. It can be a virtuous cycle of fun.
Evaluate Your Fun
Sit by yourself and come up with a list of 10 things that represent Type 1 Fun to you and 10 things that represent Type 2 Fun. For example, here are my lists:
Type 1 Fun
- Spending time with friends and family and dogs
- Taking a bath and reading
- Hosting people at my apartment
- Listening to/Playing Music
- Rock climbing
Type 2 Fun (the problem it solves/goal achieved is in parentheses)
- Running (want to be a better runner)
- Swimming (want to be a better swimmer)
- Pro bono work (lack of meaning)
- Practicing foreign languages (want to speak fluently)
- Cleaning (messiness can be stressful)
- Dating (
keeping my mom happyfinding a husband)
- Applying for Jobs (
keeping my mom happyfinding a job)
- Going to new classes or activities (meeting new friends)
- Intermittent fasting (gives my mind clarity and a smaller waistline)
- Listening to new music (gives me new music to listen to, but can be a slog to find something I like)
(If you’re having problems coming up with Type 2 Fun, think of the worst problems you have or the goals you want to achieve and the activities you could do to surmount them. It was much more difficult for me to come up with a list of Type 2 Fun, than Type 1.)
Match Your Fun to Your Money
Ok now that you have these lists, what now?
Well, this is where you look at where you spend your money and see how that matches up with your list. Are there things on your lists that you want to spend money on but haven’t?
Granted, a lot of the things on your Type 1 list might not cost anything at all. If you already have a bike, you don’t have to pay that much more in order to ride it.
Evaluating How You Spend Your Money to Create a Better Life
For me, my biggest budget expenses are my apartment, food, gifts, and transportation. A typical personal finance blogger giving generic personal finance advice would scold me for having an expensive apartment. The apartment is expensive but it’s the cheapest building in the area, and this area is cheaper than most other areas in the region. It’s close to friends and family, is good for hosting, is perfect for taking a bath, is close to trails for biking, and is close to my rock climbing gym.
You can see my apartment crosses off a lot of the things on my Type 1 fun lists. Even though those specific activities are free, paying for this specific apartment helps me have more Type 1 fun. So though I could save some money renting somewhere else, I’m going to be wary of those savings because this spending brings me so much joy.
With food, a lot of my spending comes from hosting, which I love. With transportation, I have a car because it makes it easier to visit my family. With gifts, and charity, that just reflects who I want to be. So yes, a personal finance blogger would pull their hair out because I’m not lowering every single cost, but for me, I want to live my life as reflected by my values. That means focusing on my spending. I will save in all other areas so I can spend in the way that I want.
How to Spend Money to Create a Better Life
For new activities that cost money, and to prioritize items on your list that have fallen off, consider making those activities a priority. Say you want to take a painting class. Look up a nearby painting class and how much it would cost to start. Put it into your budget like this:
Painting Class: $X
How to Find Money for a Better Life
If there isn’t money in your budget to afford the wanted painting class, then you can start thinking about saving. Every purchase you make, you should think, is this more important than the painting class? Do I care more about buying a tenth shirt than painting?
What are things that you’ve spent money on that aren’t as important to you as your painting class? It’s easy to say I don’t need a new pair of mass market Ikea art, if you can visualize the joy of having original paintings by you hanging in your apartment. Then, it feels a lot less like deprivation and a lot more like prioritization.
And if you find, no, I’d rather have the millionth shirt than the painting class, that’s fine too. Maybe the painting class is not something you really want – maybe it’s something you think you should want. And that’s fine. The most important thing is to be honest with yourself about your spending and who you are.
Consider How Your Spending Shapes Your Identity
You are not defined by what you don’t spend your money on. Your identity is not forgoing lattes. Your identity is not skipping cable.
Your identity will be shaped by what you spend your money on. Money is a proxy for time, and where you spend your money and your time is where you spend your life.
If you spend a lot of money buying home decor, you are telling yourself and the world you love shopping for home decor or love the feeling that having new home decor gives. And your home decor obsession is more important than spending on …whatever isn’t in your budget. So long as that’s an accurate depiction of who you are or who you want to be, there’s no problem.
Think About What Your Spending Means
Too often though, we buy things without thinking about how those objects will affect us. Yes it’s only a $5 tchotchke, but you’ll see that thing everyday in your life. Do you want it taking up so much physical and mental space in your life?
Yes it’s only a $8 shirt, but you’ll never wear it and it’ll just sit in your closet staring at you, making you feel like you have nothing to wear and that your buying decisions are bad.
The money is not the important part – YOU are the important part. Every thing you buy, every thing you spend your money on, should be doing its part to make YOUR life better. We focus on the cost too much – we should focus on the value in our lives. Once you start thinking about your life as something precious, then you’re going to be much pickier about the things you put into it. And when you start doing that, you won’t need all these saving tricks – because you will already know how to save money by focusing on your spending.
Conclusion – How to Spend Money
As with most things personal finance, your decisions are yours and no one else can really judge them. The problem is when we make money choices thinking we are constrained by expectations other than our own. If it’s your mother who cares about the home decor, you are telling yourself that your mother’s choices for your money are more important than your own. And again, maybe that’s ok for you. If you can make an objective assessment of the person you are based on where you spend your money, say it out loud, and feel ok with it, then you are doing better than most.
I think that for many of us, our budgets are on autopilot. We know the “right” things to cut, we know how to raise our income, we know how to invest, but we don’t know how to give ourselves permission to have enough or any fun. They say money can’t buy happiness, but actually it can get us pretty close.
*(The fun scale actually lists three types of fun, but the third type of fun is literally defined as not fun in the moment or in retrospect, which to me disqualifies itself as a type of fun.)