What You Shouldn’t Spend Money On and Why You Shouldn’t Listen to Me

Mr. ThreeYear and I have, over the course of our ten years of paying attention to finances, amassed a pretty decent net worth. We have done it by prioritizing spending in the areas that we care about (like saving for the future) and cutting spending in other areas. Many times on the blog, I write about the things that we do spend money on, like travel, and I can’t help but get excited and implore you to adopt similar spending habits. However, the truth is, this is a mistake on my part, and I apologize for it. You should not necessarily spend your money on the things I spend my money on. Nor should you save your money for the reasons that I save mine.

Why? Because you and I have different values. I’m sure some of our values coincide or else you probably wouldn’t be reading this blog for very long, but it is almost definitely true that you and I value some different things. Your values are based on where you grew up, how you grew up, the challenges you faced, things that went well for you, and special circumstances you currently have in your life. You prioritize your spending based on those values.

In our family, we value three things particularly highly: family, travel, and financial independence. We’ve saved a large portion of our incomes for retirement. We also spend a relatively large amount of money each year on travel because it’s important to us. We’re willing to spend more on travel and less on things that we don’t value as highly, like transportation. Finally, family is important to us. We are making life decisions in order to put our family first, and that means that other things will then become lower priorities. It’s why we spend money on activities we can do together, like skiing.

Since the amount of money that comes into everyone’s bank accounts each year is finite, we have to prioritize our spending. We buy things that are important to us, and in order to buy those things, we don’t buy other things (how well we do at making sure our spending is actually in line with our values can vary, but we’ll get to that). In my situation, we spend more money on having a secure financial future and less on having the latest material goods. Those are values that I hold dear, but they may not be your own. And of course, that’s absolutely fine.

Here are things I love to spend money on:

• a housekeeper
• original art for my house
• plants
• well-made canisters to hold leftovers
• gifts
• Christmas
• international vacay
• organic fair trade coffee
• index funds

Here are things I rarely spend money on:

• books (I use the library primarily)
• takeout coffee
• new clothes
• makeup
• brand-name sunglasses
• concerts
• sporting events

Our lists will look totally different and some of the items on my list may make you squirm. You’ve probably engaged in the exercise of judging others for the way they spend money.

“They’re buying a new house that costs how much? Why would they do that? What a waste!”

“Is he still driving that hunk of crap? It’s time for him to pony up and get a new car!” 

“I can’t believe they spend that much on private school each year. Our public schools are just fine. Why would they do that?”

What we’re really doing in these instances is judging other people’s spending through our value system. And that just doesn’t work, because different things are important to different people.

Spending

We all spend. Even those of us who save 80% of our after-tax incomes spend (all that saving is actually spending, on financial independence. Investing your money is spending on the security of your future).

You may value a nice ride. Buying a new luxury sedan every three years may be a really important value for you. No matter how much I write about how much I love our small gas-sippers, you may laugh in the face of my Prius. More power to you–that’s your value. You could have grown up riding to school in a clunker, and promised yourself you’d never do that again as an adult. You could value the safety, the craftsmanship, or simple the aesthetics of a nice car.

I may spend way more on groceries or eating out than you would ever dream of (“What a waste! I mean, really”). You might never dream of prioritizing your beautiful home for yearly vacations overseas. The local beach is where you like to relax, anyway.

Your Values

If at all possible, come up with a list of the things that are valuable to you, so that you can make sure that you are spending on what’s truly important. After all, there’s nothing worse than realizing at the end of the year, that you spent $2000 on Starbucks takeout and only $500 on eating out, if eating out is something that you really enjoy, but you don’t particular care about takeout coffee, or you’re willing to make your own. In this case, it makes sense to make a change in spending because it will benefit your life for the better.

Once you figure out what matters to you, then you’re free to spend on the things that make you happy. In the personal finance community, a whole host of bloggers spend a lot of our money on future independence. While we post a lot of reasons and justifications for doing so, that high level of savings represents a value system.

Here’s the thing: most people, when they’re spending, aren’t consciously thinking about their values. This is something you need to train yourself to do. When we whip out our credit cards because we’re faced with something shiny and new that catches our eye, our short-term need for instant gratification overrides a longer-term plan. This is when the dreaded “I feel out of control about my spending” comes in to play. When you feel unable to make the long-term decisions you want because of the short-term bad choices, that’s when money anxiety happens.

When we paid off our debt and began to build up our net worth several years ago, we started tracking what we actually bought. Believe it or not, it was the reverse-engineered way to see what actually mattered to us. This is the single best way, in my opinion, to have a better conscious grasp over what you spend and why. Just write down everything you spend. If you write it down, you become more conscious of your spending decisions. Then, you begin to make better choices about what’s actually important to you.

My friend was loathe to start budgeting, because she thought she’d have to give up the things that mattered most to her–healthy, local food, quality-made clothing, and travel. But through the process, she realized that she didn’t have to give those things up at all. Instead, she could prioritize them over a fancy house. Her family just bought a fixer-upper in her dream state and they’re so happy with their spending choices.

Opportunity Doesn’t Just Knock; It Costs

I have been reading a very good book, Dollars and Sense: How We Misthink Money and How to Spend Smarter (that’s an affiliate link: check your library first, but if you buy it on Amazon, I appreciate you supporting the blog).

As is probably patently obvious, people don’t spend money rationally. In fact, we often spend money without realizing the consequences of those expenditures. For example, when you were stopping by the Starbucks for the third time this week on your way to work, you probably didn’t consciously think about the tradeoffs you were making: that you would not be able to go out to eat as much because of this decision, or you wouldn’t be able to buy a new pair of shoes.

In the same vein, if you’re at the car dealership, and you decide to lease or finance a pricey vehicle, you’re probably not thinking about the other purchases you’re giving up: an international vacation for the next three years, the ability to retire five years earlier, or dinners out twice a week. But you are in fact making those trade-offs because money is finite.

“Opportunity costs are what we should think about as we make financial decisions. We should consider the alternatives we are giving up by choosing to spend money now. But we don’t think about opportunity costs enough, or even at all. That’s our biggest money mistake and the reason we make many other mistakes. It is the shaky foundation upon which our financial houses are built” the authors write.

Therefore, don’t listen to me (or anybody else) when I talk about what to spend or not spend your money on, but remember: you should think about what you’re buying, and make sure it’s in line with your values. Otherwise, you’re like a speck of dust in the wind, being pushed around by every force that is immediately acting on you.

By tracking what you spend and figuring out your values, you can tell me, and anybody else, to go take a long trip off a short pier. Because you’ve got your money priorities straight.