Wednesday, October 22, 2014

On Money and Spending Philosophies.

I know. Money is such a controversial topic. Everyone has such strong opinions about money. So why am I bringing it up? This month marks the one year anniversary of my husband starting his real job. Which means we've had one full year of living on a real salary.

Before this year, when we were students living off grants and student loans and part-time jobs, my philosophy on money and spending was very simple: we can't afford anything. We never bought anything unless it fell into that Absolutely-Desperately-Necessary category. In the first two years of our marriage, our grocery budget was $30 a week, which I generously expanded to $35 a week when we moved to Chicago (higher cost of living). My husband likes to tell how I encouraged him to use the restroom while he was on campus to save on our toilet paper purchases (but seriously, he uses way more toilet paper than is necessary). And when it came to things like new clothes, those were special birthday or Christmas presents. I'm all about presents serving a practical purpose.

You would think having a real salary would feel liberating, after all those years of scrimping every penny. But actually, no. I find it kind of disorienting. Now when we're at the store, and my husband asks if he can buy a pair of sunglasses, my old response of "We can't afford it" doesn't work anymore. Because we can afford it. So now the question becomes is it a necessity, or just a want? But this is actually a fairly complicated question to answer because usually there's an argument to be made about necessity on some level (because yes, sunglasses are "necessary" for eye protection). So the next question becomes should we buy the cheapest pair, or is it okay to spring for the fancier nicer pair with polarized lenses? Because there is that argument to be made about investing in quality products because they will last you longer and potentially save you money in the end. And suddenly what was once not even a question now becomes a really complicated question with lots of hemming and hawing over options and values and priorities and how do we want to spend our money? And believe me, these questions and options tend to leave me way more stressed now than I ever was in our student days.

In honor of this one year mark of employment, we've been working on some spreadsheets to analyze our spending habits and create a budget going forward. Of course, we had a budget in place for this year, but it's amazing how many expenses popped up that we didn't plan for. And it's been fascinating (and a bit discouraging) to see where our money has actually gone this past year. Needless to say, this spreadsheet project has inspired a lot of discussion between me and my husband about our spending philosophy.

So I found it a bit serendipitous when I stumbled across an article recently about how to spend in a way to increase your happiness. I think most sensible people understand that "money can't buy you happiness." I grew up believing money wasn't for happiness, it was for security, and the only way for money to bring you security was to be as frugal as possible and save, save, save. So I find the idea that spending in certain ways could actually make you happier to be intriguing, and I've been thinking about this a lot. The article was actually a book review of Happy Money: The Science of Smarter Spending by two behavioral science professors, Elizabeth Dunn and Michael Norton.

Now, I'm freely admitting that I haven't read this book yet, and therefore I'm not recommending it (however, I have added it to my to-read list), but the article I read summed up five of the major points this book makes about spending, and I found them very interesting.

1. Choose Fun Over Stuff

Sometimes this one feels a bit counter-intuitive to me, because obviously "stuff" is going to last longer than "fun," and is usually the more practical option. But my husband is all about spending money on "fun", or on experiences that are super memorable. And it's true, when I look back on our student days, my favorite memories are the trips we made even when I thought we couldn't afford them, and the fun we had exploring Chicago and the surrounding area. I don't regret spending money on those experiences one bit.

2. Make it a Treat

The idea behind this one is that you take something you enjoy regularly (eating out, for example) and voluntarily restrict how often you do this thing, because your enjoyment of it actually increases the more rare an experience it becomes. I'm a big believer in this one. Growing up, my parents let us pick where we wanted to eat out on our birthdays. Because we NEVER ate out, not even at fast food places, I remember this being the greatest treat ever. My younger siblings even chose to eat at McDonald's for their birthdays. It's hard to imagine now thinking of McDonald's as a treat, but when you never go there otherwise, it becomes special. My problem now is deciding how frequently we deserve "treats". Just birthdays and special occasions? Once a month? Once a week?

3. Buy Time

This one also feels a bit counter-intuitive to me too. At my core I believe that saving money should always be the priority, even if it means investing a lot of time. But Dunn and Norton argue that we could be happier if we spend on things that will maximize how we spend our time. For instance, they contend that buying a smaller house (or in our case, renting an apartment) closer into the city will make you happier than moving out to the cheap suburbs where you can get a huge house, but pay for it with a long commute. This one is a big question for us, because we will probably be moving within the next year, and we are trying to make the cheap suburb vs. expensive city decision. Right now my husband's commute to work is about twenty minutes during rush hour, but if we move to the (much cheaper) suburbs, that commute time will triple, if not quadruple. When he already spends so much time at work, neither of us want him spending more time on the commute.

Another quick example is using a house-cleaning service. My mother's philosophy of course is to never pay anyone to do something you can do yourself (she comes from good, honest, hard-working farmer stock), and this includes housework and yard work. But honestly, I hate cleaning. We live in a tiny, two-bedroom apartment, and I struggle to keep it even decently clean (let's be honest, when I was pregnant, I didn't even try at all). So I was delighted when my husband gave me a voucher for a two hour cleaning service for my birthday this year. Not only was it a treat (see above), but it's time well maximized. A cleaning service will accomplish in two hours what it would take me a miserable week to do. (I haven't used the voucher yet, I'm waiting until all my help with the new baby leaves and I'm left on my own with two kids again).

4. Pay Now, Consume Later

This one seems mostly to be talking about the happiness that comes from anticipation, like buying your plane tickets now and then having months to anticipate that trip to Europe. The anticipation is almost as satisfying as the trip itself. For me, this one works because the worst part about any experience, in my opinion, is paying for it (I am not one of those "retail therapy" types, shopping is almost always a stressful and painful experience for me because it involves paying money). But once money is spent, once the tickets are purchased or the hotels booked, it's a sunk cost. The money's gone, so I am free to enjoy the experience when it comes. So yes, I appreciate the idea of pre-paying for experiences or goods. The pain happens up front, and then I get over it and enjoy what I paid for. I think this is a much better experience than waiting for the bills to come after you've had a good time (way to end a vacation on a sour note).

5. Spend on Others

This is one that has been the topic of lots of our money discussions lately, because it turns out that many of our unforeseen expenses this past year were gifts (we didn't anticipate how many baby showers and toddler birthday parties we'd be invited to) or donations to close friends and family (there's been a lot of tragedy recently). This one is a puzzle for me, because while it's nice to feel like we are in a financial position to be generous, how do you budget for it? My gut instinct is to nix all expenditures that aren't in the budget (after all, this money has to come from somewhere), but at the end of the day these are also the kind of expenditures that make us feel the best. It feels good to buy all my nieces and nephews birthday presents, even if that expense grows exponentially every year. It feels good to donate to a cancer fund, or some other charity. It feels good to give back when we have been blessed with so much. It's just a puzzle how to decide who and when and how much, especially when most of these opportunities are unanticipated.

Now these tips above don't address a lot of my money questions. We're still sorting through much bigger problems of how quickly to pay off our student loans (oh, the burden of debt!), where our savings should go (rainy-day fund? retirement? house down payment?), and how to allocate our budget. But with the discretionary money we do have, it's interesting to think about how we can use it to increase our happiness. And it might make me feel less anxiety about spending to think of it this way.

I'm curious to know, what's your money philosophy? Are you all about frugality, or do you see spending as a way to increase happiness?

1 comment:

  1. This is a great post! We are just delving into the world of having an income and keep going back and forth on how much debt to pay off. Basically I need all your advice!