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Prioritization
Posted on September 28th, 2009 5 commentsThe fastest way to ensure that your budget fails is by attempting to apply frugality equally across all aspects of your life. An effective and sustainable personal finance plan doesn’t include deprivation. It instead allows us to spend more liberally on things we really care about, and cut back on things we don’t.
It’s an objective fact that resources are limited (just don’t tell this to law-of-attraction crazies), so it only makes sense that we should employ said resources in the most efficient way possible. Heck that’s essentially basis behind the field of economics. But do we actually do this?
Humans are semi-rational beings, so we should tend to prioritize even when we don’t consciously think about doing so. Unfortunately, “should” is probably the key word in that last sentence.
To successfully set our priorities straight, we must honestly answer the following question; what is it that we really care about? Identify the areas where the prospect of being thrifty makes you nauseous.
-Say you’re an avid mountain biker- what would your reaction be if I suggested you buy your next ride at Wally World?
-Or maybe you’re a classic car buff- are you planning to trade in your ‘67 Charger project car for a late-model Toyota anytime soon? I didn’t think so.For me, a good example is basketball shoes:
Sure I could go to Payless and get a pair for $19.99, but the chances of that happening are about as good as me sporting John Stockton-style short-shorts while playing.
I’m prepared to spend anywhere from 3-5x that much on a pair that are durable, offer plenty of ankle support, and are still comfortable even after 2+ hours of running up and down the court. And of course, they have to look pretty sweet, because maybe more so than any other athletes, basketball players are obsessed with how their footwear looks. I’m no exception.
It’s easy to identify things that we value, but that’s only half the equation. We must also identify what we don’t care about. This can be tougher, because it involves conceding that we must cut back in some ways in order to invest more resources elsewhere. However, if we want to maximize our total satisfaction (or utility, for any fellow econ nerds), we must ruthlessly cut back on the things that mean little to us.
Personally, I don’t care about having a fancy ride. My plain-jane Civic is fine with me, even though it’s lacking in all the creature comforts that have been standard on most vehicles for some time now (no power windows or locks even). I don’t mind driving a Spartan car as long as it’s efficient, reliable, and safe.
It hasn’t always been like this though; not all that long ago my nose was constantly buried in Sport Compact Car magazine, brainstorming how I was going to trick out my future Mitsubishi Lancer Evolution.
Somewhere along the way though, I realized that spending an enormous amount of money on a car wouldn’t really add much value to my life, and that I could think of a ton of better ways to invest the money. While I won’t deny that I would enjoy having one, the benefits of buying a kickin’ ride (more egotistical than anything) wouldn’t come remotely close to overcoming these realizations.
Where do you spend your money more liberally, and conversely, in what areas do you not care to spend much at all?
5 responses to “Prioritization”
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Howdy Blake. There is a category that fits both of the criteria: Clothes.
I think it’s important to spend a little extra on high-quality clothes; they’re more comfortable because of the better cut, are made of better material and will therefore last longer, and lastly, they look good.
That said, I don’t buy clothing that often. Many items like shoes, pants, button-down shirts that cost more I’ll keep for a long time (years). Items that are less costly like t-shirts, socks etc. can be bought more frequently. But even those — a good pair of socks will last longer than a cheap one.
It ends up that I can go clothes shopping every few months, but never to splurge. Usually, it’s just to replace a shirt or a pair of pants that have worn out.
Aside from clothing, I don’t buy that much STUFF – a large chunk of my spending is on services like eating out.
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shultice September 29th, 2009 at 20:34
Hey there Oleg!
I mostly agree with your take on clothing- especially since higher quality will also probably mean that we will take better care of it.
There are some exceptions though; I highly doubt jeans at Abercrombie that sell for $70-80 will last longer than the pair I get for half that at Kohl’s or JcPenny (especially considering they’re already all torn up to be fashionable- I can’t stand that).
Same thing with shirts- I see no reason why a funny, random shirt found at Goodwill for $2 won’t last just as long as a $30 t-shirt from The Buckle.
But, like you say, when it comes to shoes, dress pants, button-up shirts- it’s probably a wise investment to buy higher quality and then keep for a long time.
Thanks for stopping by!!
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Hello,
Clothing does seem to be one of those things where we could spend less with the same or better quality. Buying clothing at Goodwill even keeps with the styles now as more and more name brand clothing have been battered and torn to keep with the times.
Another thing I think we spend too much on is gas. There are so many short destination where we tend to drive our car instead of riding a bike or taking the time to walk. Sure, in many cases you need to drive, but there are those times where it wouldn’t hurt to take a small walk. Sure it may take a little more time to walk, but you also get that time to think and clear your head (and in these days it seems more and more important).
Brand name amenities also seem to be a big spender. Now, most of the time there is not much difference between generic and brand name amenities. Things like toilet paper, toothpaste, and food vary in quality by a much smaller proportion to their difference in price.
Saving over the long run by using smarter buying tactics, will leave you more cash to do thing you want to spend money on. More money in your pocket makes you a happier person. And the world could always use another happy person!
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I’ve got to agree on the clothing front as well… I don’t buy clothes often, but when I do I make sure I have something quality that will look great and last a long time. This applies more to business casual and dressy clothes than it does to casual wear.
Also most of my “mad money” usually goes towards electronics/games/gadgets. I’m a total tech geek – this I’ll freely admit. I’m sure my wife would agree as well.
Truly though I love saving and investing and if my clothes didn’t wear out and people would stop inventing new tech stuff I’d have nothing left to buy and so I’d do my next favorite thing: building up investments.
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Hey there Blake.
I too am an avid basketball player and make smart choices when buying my basketball shoes… But I hear you only buy shoes every 2-3 years(and you wear them till they are completely useless), as I buy every year. What is your opinion on needing new shoes every year, despite the condition?Although after a year, I seem to really wear down the shoes.
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Oleg K September 29th, 2009 at 02:05