Prioritization

The 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?

Does it Matter?

That one simple question can reveal and eliminate a lot of unnecessary worry.  It can also save us money.

An example- The broken gas cap:

About a year ago, I pulled into the gas station to fill up the Civic. Unfortunately for me the gas cap release trigger had conked out since the last refill, so I had no idea how I was going to fill up.  Things weren’t looking too good; I probably didn’t have enough gas in the tank to get home, and certainly not enough to make it to the Honda service shop.

Thankfully I was able to track down the number to the Honda shop, and the guy on the phone helped me find a quick fix.  I had to pull back the carpet-lining in the trunk and remove the cable-locking mechanism that held the cap in (see picture below).  When I was ready to lock it back up, I had to plug the cable back in.

After the Honda guy saved my day, the rest of the conversation went something like this:

Me:  Well then I don’t really need to have it fixed, do I?  I can just do this every time.
Honda guy:  Well you could, but I would definitely recommend having it fixed.
Me:  Right.

I think he could tell the chances of me having it fixed were slim to none.

And honestly, why would I?  It’s only a minor inconvenience, taking probably 5-10 seconds each time I fill up my car.  In January when it’s 2 degrees outside the inconvenience factor is a tad higher, but I still don’t think it’s worth taking the time and spending the money to have it fixed (especially with the cost of labor).

• Does it affect the performance of the car?  Nope.
• Does it affect the value of the car?  Yes, but I will drive it until it falls apart anyway.
• Does it affect the safety of the car?  That’s a negative.
• Is the inconvenience great enough to justify spending money on it?  Nein.
• Do I look a little goofy filling up?  Maybe, but I don’t care.
• Could I put the repair money to better use.  Absolutely.

So, in the grand scheme of things, it’s clear that the broken gas cap doesn’t matter in the slightest.

I can think of a few other areas in my life where this question puts things in perspective:

1.) The old, faded, sandals:  I don’t know how old they are by now; probably 6-7 years.  I’ve had to superglue them the sides back on 3 times now, but it’s a quick fix and they’re good to go again.  My grandma, upon seeing how dingy they look recently, swore to buy me a new pair as a college graduation gift.  I don’t see why they need replaced though; they’re perfectly functional!

2.)  The Goodwill shirts.  A couple buddies and I used to go to Goodwill just to have a good time and buy funny, completely random shirts costing between $1 and $2.  A few years later, a couple are still in great shape, so I still wear ‘em.  They don’t fit in with all the Abercrombie shirts around, and I don’t even know what the heck the writing on a few of them mean, but it’s like the sandals; they’re functional and clean, so who cares?

There comes a point when inconvenience, cleanliness, or discomfort makes a level of frugality irrational or just plain dumb.  But for the most part, we can still save money without really sacrificing anything at all, simply by questioning what really matters.  In a world of limited resources, the question ‘does it matter?’ can certainly help get our priorities in order.