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IF YOU HAVE READ enough HumbleDollar articles, you’ve probably noticed that frugality has played a major role in the financial success of many of the site’s writers. Peruse the article comments and the site’s “Voices” section, and you’ll find that readers often share the same thriftiness. Frugality is also a key theme running through many of the 30 financial life stories in the forthcoming book, My Money Journey. Sure enough, I highlighted frugality in the essay I contributed to the book, as well as in my most popular HumbleDollar article to-date.
But while we might be good at saving, we often aren’t nearly so successful at spending. We find ourselves investing quite a bit of emotional energy in every spending decision—because we feel so acutely the opportunity cost of parting with our money.
For those in the accumulation phase, every splurge means less money toward building their nest egg. For those in retirement, a big expense means a big drop in their portfolio balance. Could that mean a greater chance of running out of money? At a minimum, any spending takes away from what heirs would otherwise inherit.
An awareness of opportunity cost is a pillar of smart financial management. But when the time comes to splurge, how can we feel less conflicted and freer to really enjoy ourselves? As I reflect on my own ongoing attempts at balance, I find that I’m most at peace with decisions to splurge when I can confidently answer five questions.
What am I really paying for? My capacity to enjoy luxury goods and experiences follows a curve of diminishing returns. Perhaps the $50 steak tastes better than the $15 steak, but I confess my palette is not sophisticated enough to taste the difference in the $100 version.
I don’t want to pay extra just for the privilege of being able to say I did. When I feel like I’m paying a premium simply for access to the abstract concept of luxury—but not something of substance I really care about—I have a hard time relaxing and enjoying it.
But I also notice my tastes have adapted over the years when I’ve given new things a chance. For example, I once considered the Omni Grove Park Inn in nearby Asheville, North Carolina, to be in this category. Then I received a generous gift card to go there, so Sarah and I gave it a shot last summer.
The experience won us over. We’ve already been back again. The day passes to the spectacular spa complex were $200 a pop and it took $450 for one night in even the smallest room at the historic inn. Still, it was worth every penny.
Do you enjoy such indulgences? Aim to be light-heartedly honest with yourself. It won’t do you any good to be too uptight. In fact, that may be a sure route to spoil the pleasure from such spending.
Will it suck me in? Do you remember the story If You Give a Mouse a Cookie? A boy gives a friendly overalls-clad mouse a cookie, which leads the mouse to ask for a glass of milk to wash it down. Then comes the request for a straw, then a napkin, then a mirror to check for a milk mustache. The dominos continue to fall until the mouse has exhausted his friend with a full day of requests.
When I’m assessing a potential splurge, I’m vigilant about avoiding that kind of trap. I’m looking for something I can enjoy free of any further encumbrances. If one purchase will undoubtedly lead to another, I’m wary.
I tend to feel that way when I go into one of the specialty mountain outfitters that are plentiful here in East Tennessee. I usually walk in open-minded. I’m not an avid outdoorsman by any stretch, but I do love and appreciate nature. “Maybe I’ll find something for my next hike,” I tell myself.
But then I stumble upon the pricetag for what appears to be a long-sleeve shirt, but it’s actually a $100 ultra-performance base layer. I immediately start extrapolating that rate-per-garment over an entire outfit. Then I decide nature will be just as much fun in ordinary clothing.
A house is the ultimate high-stakes example of this phenomenon. You have to commit to the mortgage, pay the closing costs and incur the moving expenses. But then the real spending begins: You’ve got to furnish the house, decorate it, landscape it, insure it, secure it, outfit it with appliances and technologies, serve it with utilities, maintain and repair all that, and then do it all again because you’ve already tired of what you picked out the first time. For this reason, a house is the worst kind of splurge. If your next home feels like a stretch, it’s best to let it go.
Does it make my wife happy? I’m not saying she has to enjoy every expenditure as much as I do. But if she has reservations, I’ll pass. I know she wants what’s best for me, and I’m not afraid to admit that sometimes she knows better than I do. Besides, I value peace in our home and in our marriage more than I value anything I could possibly buy.
One possible exception: If I can sense that she’s fine with the object of the spending but hesitant about whether we should part with the cash, I might present some rationale for the purchase in an attempt to put Sarah at ease. If that still doesn’t work, it’s time to drop it.
Does it sound like me? Don’t get me wrong: I think trying new things and taking novel adventures can be great, splurge-worthy fun. I just don’t want to give in to every passing whim. Throw in a few nights’ sleep between the initial spark and the decision to spend the money, and I often find I’m simply no longer interested in the bright, shiny object that caught my attention. I find I have less buyer’s remorse if I splurge on things that I’m confident will have staying power.
A great example is the $10.94 I pay every month for my premium Spotify account. Maybe that doesn’t sound like much of a splurge, but if I could express how much I loathe paying for monthly subscriptions, it would. I try to avoid these monthly bank account drains, which is getting harder and harder to do.
Still, I gladly pay every month for music. Why? Music has been important to me all my life, and I’ve never enjoyed it more than now. Previous generations couldn’t have fathomed the luxury we now casually regard as standard—virtually every album from every artist available at our fingertips.
I can conveniently binge-listen to the discography of my longtime favorite band Switchfoot. If I discover an interesting new album while reading reviews in Bluegrass Unlimited magazine, I can immediately listen to every track. I can sing along with my favorite worship music, which improves my attitude like nothing else. I can bring multiple generations of our family together to reminisce about favorite classic country tunes. I can DJ an impromptu dance party for my girls. That $10.94 a month is a steal.
Will I make memories with loved ones? I’m not implying that it’s necessary to spend a lot of money to make memories. Indeed, many of my favorites didn’t involve spending much at all.
But every so often, circumstances force me to make a choice. Maybe it’s an invitation from friends or family, and I have to decide: Will I spend the money and be part of the experience or will I hold off for another day? I’ve only taken 35 trips around the sun, but I’ve known enough life to realize that time is short. That’s why I’ve become much more likely to say “yes” in these situations—because making memories with family and friends is what I want my splurges to be about, and I know I’ll only get so many chances.
This is how I ended up happily shelling out $190 for a single ticket to a college baseball game last summer. My Tennessee Vols were playing for a berth to the College World Series, and my usual baseball game crew—my brother-in-law and a few friends—had found tickets for us. I couldn’t say “no.”
It’s why I paid $670 to renew our Dollywood passes for the upcoming season, even though we’ve been to the theme park probably 20 times over the past few years. With each visit, we have the pleasure of reliving old memories and making new ones—and I want to experience that with Sarah and our girls as many times as possible.
Matt Christopher White is a CPA and CFP® who writes about money and apprenticeship to Jesus. He’s the author of “How to Love Money: Four Paradoxes that Breathe Life into Your Finances,” available at MattChristopherWhite.com. Matt is equally comfortable talking about Luke 6:43, Section 643 of the Internal Revenue Code and the 6-4-3 double play. There’s no place he’d rather be than with Sarah and their two girls, Lydia and Eliza, at their home in the foothills of the Smoky Mountains. Follow Matt on Twitter @WriteMattWhite and check out his earlier articles.
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Matt, thanks for the interesting article. I really liked your 2nd point – “will it suck us in?”. I think that is a very important, and often underestimated or misunderstood. This is especially true with 2nd homes, and – forgive me – time shares. Hobbies can be like that also. I’m willing to splurge on a great steak, but it’s often the right wine to accompany it that is the big splurge!
Thanks, Rick! I guess you could say it’s everybody else’s job to figure out how to suck us in (marketing, etc) and up to us to decide whether to put up any resistance.
Great article and good points to consider. Thanks!
Thanks for reading!
As our kids were growing up, we all knew the three rules for financial success–wait, shop around, and don’t buy. Obviously these only address spending and we don’t always apply all three rules, but they turned out to be a pretty good starting point!
The urge to spend less and save is indeed strong in many of us. My parents were born during the depression and raised three kids in post WWII on one income. Eating in a restaurant was rare and steak in any form was non-existent. Our clothes were home made and vacations usually involved sleeping in a tent in a state or national park. My parents didn’t ever have much saved and they were never big spenders, a lesson all three kids carried into adulthood.
In my own case, I worked several jobs all 6 years of college to help pay for my education. When I began working I immediately began saving for retirement. Bonuses, stock grants, salary increases were all saved. When I got married and our son was born, my wife worked part time for a number of years and money was tight. When our son went to college, we paid for it from savings and income, and he graduated debt free. Our primary debt was our mortgage and we paid for most expenses by cash or check.
When I retired, we had significant savings, Social Security and two small pensions – enough we figured to last us for the rest of our lives, with room for unexpected expenses.
We have been rewarded for being savers, but as we grow older, we also appreciate that there were opportunities for travel and experiences that we should not have passed up. The pandemic has been an especially brutal reminder of the time lost in our 70’s that we cannot now recover.
Saving and spending requires a deft balance, but I have no special wisdom as to how to manage these often opposite goals. What I can say is that too much of one over the other is likely to leave you with regrets.
All about balance…try to enjoy what you have.
Regarding lost opportunities and living with regrets— there is nothing to be gained by rethinking the past. We can learn from our experiences or redress a wrong but beyond that all we get is here and now.
Make the most of the present and good things will follow.
Recall reading a story about Warren Buffett rationalizing his private jet and then naming it “The Indefensible”.
I love checklists.
Differ on the point about your steak. While atmosphere is an important point for me, I also think that more expensive steak might be a better quality of meat, and my health is essential to me these days.
What I have found about purchases- sometimes walking away makes me want the item less. Other times, I can’t find anything quite as nice, which makes me wish I had made the purchase. I feel very lucky and blessed to sometimes have this quandary.
I haven’t eaten kobe beef, but I have eaten wagyu, the next grade down, in Japan, and it really was amazing – taste and texture were both remarkable. If you want healthier you probably want grass-fed and finished, and not too often.
Hi Sonja, I don’t splurge on fancy meals however, my son and D in law hadn’t gotten away from their farm for a few years. Last one, they decided to have some ‘most expensive cow in the world’ at a G. Ramsey restaurant . . in Las Vegas.
Then, they came back and compared it to a regular cut in an up scale place in Denver. My Daughter in law was more impressed with the one in Denver.
Could the enjoyment be in the mouth of the eater?
When I bought the house I sold last year, after 33 years, I could, according the usual formulas, have bought a bigger house. I thought 1,500 sq. ft. and three bedrooms plenty big enough, although apparently these days in the US that counts as small. More space would have meant bigger bills for heating, cooling and cleaning, not to mention a bigger mortgage payment. That smaller payment was a big help when it came to retiring early.
BTW, travel, even foreign travel, doesn’t have to be a major expense. You don’t need to rent a car (out of the US), stay in posh hotels, and eat in Michelin-starred restaurants, to have a great trip.
Many good points Matt. However, you wrote:
”For those in the accumulation phase, every splurge means less money toward building their nest egg. For those in retirement, a big expense means a big drop in their portfolio balance. Could that mean a greater chance of running out of money? At a minimum, any spending takes away from what heirs would otherwise inherit.”
Not necessarily. As HD readers have read from me – probably too many times, Using buckets for certain spending eliminates those issues. If saving is set at whatever appropriate percentage, 10-15% minimum, then lifestyle is already set and from the available funds fun spending goes into a special account to accumulate – no credit card balances. Thus the nest egg is unaffected although other spending priorities must be assessed.
Same thing goes for those of us retired. The key is the income stream. From that regular stream must come the fun spending. I choose to also use a special fund to accumulate that money and would never, ever take it from the retirement portfolio. I have a pension, but the concept is the same for those who live totally off of investments.
They create an income stream and that is their total income from which the non-frugal spending comes. One option may be to use a portion of SS to accumulate fun money or perhaps accumulate some dividend paying stock outside of retirement income funds and use the dividends to accumulate fun money.
The idea is that all spending comes from the lifestyle income stream no matter how established and no spending occurs until the money is in the pot for such spending.
R Quinn….advice on setting up these special accounts? We save a large percentage of our small incomes so we always feel strapped to enjoy the money we do have. It’s hard to strike a balance between saving and living. We are in our 50s and want to enjoy life too. Is 5 different accounts too many in your opinion? (Daughter’s wedding, vacation, emergency, monthly living expenses, car purchase account for example). I just find myself always trying to save more for “just in case”. I’m looking for a way to live with some breathing room.
Thanks, Richard! Reading your comments also reminded me of this: Even if there is an extraordinary expenditure that you want to fund that doesn’t fit in your otherwise established plan, it could be an option to find an extraordinary income source to offset it. There might be a side project that could provide both income and enjoyment–especially if you have the goal and the reward in front of you as motivation.
Thank you Sir Richard. I spent some last year about now, on another investment home. Now, in the process of paying it off with extra spending. My heirs will benefit from the commerce created.
I meet a contractor I’ve worked with and consider a friend. I told him, money in a bank doesn’t work for you. That’s why I try to spend it down every year, on projects to build a better estate otherwise.
Expecting any taste difference between a $100 steak and a $50 steak is an example of what I call fake luxury. I appreciate the difference between a strip steak, a fillet, or my personal favorites a ribeye or Delmonico. In contrast, expecting a taste difference based on price doesn’t make any sense to me. A $20 grocery store ribeye can be cooked at home with results equal to any restaurant, regardless of price. Restaurants tend to add more salt than home cooks do, but where else would any difference even come from? They all come from the same factory farmed cows, and aside from possibly dry aging, are cut and processed in the exact same way.
Leather seats are another good example of fake luxury. Leather is cold in the winter and requires extra heating elements in order to be tolerable. It also doesn’t allow air flow, requiring extra perforations to allow some level of ventilation on hot summer days. After about 5 years it starts to deteriorate and look worse than a quality cloth seat, assuming both are kept relatively clean. Yet leather is considered a luxury, purely because it’s more expensive.
Real luxury is all of those things you probably already have. For example, a house that has both heating and cooling, a separate room for each kid, and even a separate room or parking space for your car. These are not necessities, as millions of people exist in housing without these optional extras.
It’s easy to fall into the trap of faux sophistication, such that one starts “appreciating” differences that aren’t even there. But by appreciating all of the real luxuries I have, I find it much easier to avoid the fake luxury trap.
If you buy your meat from farmer’s markets, or the right store, you don’t have to eat factory farmed meat. Some restaurants also offer local, grass-fed beef.
Grass fed and Bison are also available at my chain grocery store. Grass fed has a better omega 3 ratio, but on taste it’s about the same, and the texture is slightly tougher. Both forms of beef production result in the mass breeding and consumption of cows, the animal with the single highest climate impact of any meat, so I don’t see grass fed as anything other than a minor health benefit for a lot more money. I’ll take any health benefit I can get, but simply eating less beef is likely the better option.
Our thinking about purchases is eerily similar. I much prefer an annual subscription to one that hits my account monthly. One suggestion…my wife and I set up a travel account that we regularly contribute to and we each have a “fun” account that is also automatically funded. It’s embarrassing how long it took us to set up these accounts because they’ve been such a stress reliever.
Yeah, Mark, keeping up with where money goes is hard enough without breaking up purchases into twelve monthly installments.
I like your ideas. There is something very helpful about intentionally and visually separating money for what’s important to you–as you propose.
Music is important to you. Imagine how important it is the the musicians who create it. I am not a musician, but I love listening to music and attending live performances. By using Spotify, you are paying the music industry elite, but robbing the actual musicians. I encourage you to consider a more equitable music sharing platform, such as Bandcamp, to indulge your listening pleasures.
I use Spotify to find the artists I want to support on Bandcamp.
Well, actually getting retirees to spend when they can afford to do so, is a significant challenge as well, as has been pointed in these pages.
Good article, Matt. Question three is especially true—happy wife, happy life.
Thank you, Ed! It really is true. I’m thankful for my wife.
Purchase decisions are very complex. Warren Buffett says candy sales at See’s Candy are good especially on Valentines Day because who wants to say, “Honey, I got you the cheapest box of candy I could find.” I guess that might fit under the “memories” category.
A boss of mine once told me, “You can rationalize anything.” I think we do that with our purchase decisions, one way or another.
You have a good checklist to work from. I can see it being very helpful for a lot of people.
We are natural rationalizers. It helps to know that about ourselves so–while in our moments of clarity–we can set up some systems to help make wiser decisions.
It made me smile to read your comment that you think this can be helpful for a lot of people. Thank you! I hope it is.