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How to Spend Money Wisely: Society vs Reality

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    So you have figured out how to invest and optimized your retirement accounts. Bravo! You will probably win the personal finance game. The next problem for you is to live a life of abundance— how to spend money.


    In this post I will talk about:

    1. How to spend money and smooth out consumption
    2. Enjoy it
    3. Run the numbers


    “But I want the last check I write to bounce.” –Saul from Ocean’s Eleven.

    While Saul has an extreme opinion, I believe there is a happy medium between depriving yourself and going insane.


    The broader culture

    Now in general, the culture extols folks who live simple lives. Think about Warren Buffet driving around in an old car and living in his old house. Or Bill Gates or any number of rich folk who lead simple lives. The implication is always, “Hey, these billionaires live a simple life, look at how little money they spend. Why can’t you do the same?”  Without understanding that different people have different desires.

    A bit of digging around puts this myth to rest. Warren Buffet has a private jet. Bill Gates enjoys a palatial house that he had built with the finest materials money could buy.

    They all splurge in certain areas that give them immense pleasure and don’t care about the rest.

    The idea is to align your spending with the things and people that give you great enjoyment.

    The culture that we live in also subtly hints that being good with money means NOT spending it. Beyond a certain point, your net worth really doesn’t matter. What matters is the life you are able to live. For example, if you live your dream life, do you really care if your net worth is 1 million, 5 million, or ten million?

    I have agonized over $4 lattes and lost my mind over not returning a $20 t-shirt when this was not worth getting anxious over at all. Just as saving and investing money is a skill, so is spending money. Yes, you read that right. Spending money is a skill.

    Yes, we can try to live as rational acting robots over each financial decision but, if we do that repeatedly we will hem and haw over decisions that will lead to more anxiety and wast$ed time that costs us more psychological damage than any financial savings or gain.


    Socially Mandated/Acceptable Spending

    There are expenses that society will tell you is normal and this changes based on the culture you are originally from.

    For example, spend $50k – $100k on a wedding and no one blinks. Spend $15k to $20k on a funeral and no one cares. Buy yourself something nice for $200 and everyone loses their minds. Buy a $1.5 million dollar home in the Bay Area and everyone thinks it’s a wise thing to do. Spend $200 a month on subscriptions or $20 on avocado toast or $4 on lattes and it’s insane.

    Be wise to this. Figure out where your own priorities lie. If you want to spend money in socially acceptable ways, go for it, but be aware of why you are doing it. Remember that society has acceptable norms of consumption that might not align with your internal compass.

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    And bear in mind opportunity cost. “If you spend money on something, you can’t spend it on something else.”


    Everyone has a limited life

    You act like mortals in all that you fear, and like immortals in all that you desire. You will hear many people saying: ‘When I am fifty I shall retire into leisure; when I am sixty I shall give up public duties.’

    “And what guarantee do you have of a longer life? Who will allow your course to proceed as you arrange it?” –Seneca The Younger, On The Shortness of Life.

     “After my fiftieth year I shall retire into leisure, my sixtieth year shall release me from public duties.” And what guarantee, pray, have you that your life will last longer? Who will suffer your course to be just as you plan it?” –Seneca The Younger, On The Shortness of Life.

    As corny as it sounds, your years of best health are limited. Realistically you have till you are 50 to enjoy your money.

    Also, when you retire, what will you fill your life with?

    Many people make their careers and families the center of their lives, but careers are temporary, and children are meant to leave the house to live lives of their own, so what hobbies or causes are you investing into now that will fill the gap when both of these responsibilities are off your plate.


    Small pleasures are just as important as the big ones

    When people talk about how to spend money, they talk of the big expenses and cut back on the small ones. Small pleasures are just as important as big ones and should be more frequent. Peel back the layers and you will find that you spend as much time thinking about $10 purchases as $1000 purchases.

    Have a number below which you will not hesitate to spend. The reality is, you should be asking $30,000 questions and not $3 questions. Focus on the big wins.


    Questions to ask yourself

    What is it that you really want to do?

    Make a list. Don’t censor yourself. Write first, edit later. Add a cost to each item on the list. Odds are it might be surprisingly reasonable or more attainable than you think it is.

    How many of the items on the list should you get done when you are young. If so, prioritize them.



    This post is heavily inspired by the following articles:

    1. The Shortness of Life by Seneca the Younger – One of the greatest essays ever written.
    2. Ideal Lifestyle Costing by Tim Ferris – A practical guide
    3. Money Dials by Ramit Sethi – Ramit Sethi really understands the psychology of human behavior.
    4. Die With Zero by Bill Perkins – Bill Perkins gives an actionable framework.

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