The difference between being good with money and bad with money

Post image for The difference between being good with money and bad with money

In his memoir, Aerosmith frontman Steven Tyler estimated that he spent about 20 million dollars on cocaine during the 70s and 80s, but now he’s revised his estimate down to only 5 or 6 millon.

Either way, I don’t doubt he had a good time, but I bet that with a different purchasing strategy, those dollars could have bought a lot more good times than he ended up with.

Near the other end of the happiness-per-dollar spectrum you might find the habits of my super-thrifty girlfriend, for whom a month of particularly extravagant and careless living might cost her $1200. The other day I appalled her with my anecdotes about how in 2012 I had let my personal living expenses rise to over $3000 a month. I live on a lot less than that now and I’m a lot happier, and I could still live on substantially less than I do.

I learned to be good with money overnight, just over a year ago, when I stayed up late after discovering Mr Money Mustache and Jacob Lund Fisker. Over twenty years of daily money worries ended abruptly with a simple shift in how I looked at money. In the year between then and now I’ve changed careers, become about ten times more confident in my ability to provide for myself, and I wake up happy every day.

Essentially, the realization I had is that money is permanent. You have it until you trade it for something, and then that trade is permanent — you are thereafter permanently without that money. It’s gone and belongs to someone else now. Therefore it’s important to consider the permanence of whatever benefit you traded it for.

Think about it: when you die, you will have earned and spent a specific, finite number of dollars. For you the number might be 2,193,003, or maybe it’s 8,806,550, or even 217,101,992. Whatever it is, at the moment you die, it is a real and actual number. Even if you never wrote any of your purchases down, there’s an actual list of things these dollars were traded for, and each of these trades contributed to (or maybe detracted from) the overall amount of pleasure and fulfillment you experienced in your life.

There’s an enormous range of possible things to trade these finite dollars for, but ultimately there’s only one thing you’re trying to get for your money, which is quality of life. Universally, we want the feelings in our lives to be good, and there’s really nothing else we value. If you could see your “final balance sheet” and look back on how things went, you’d intuitively know which of those transactions contributed significantly to your overall happiness and which didn’t.

This trading can be done extremely well or extremely badly. The joy-per-dollar efficiency between different trades can vary by factors of thousands or millions. Even a free six-million dollar pile of cocaine would probably remove more joy from your life than it would add, so that’s not a good thing to trade for at any price. A five-dollar coffee might add a bit of joy, but even four of them will only add up to about an hour of low-level pleasure, and then it’s completely gone for your remaining decades on earth. You could have spent those dollars on, say, a copy of Qwirkle Cubes instead, which in my life has already created dozens or hours of free, highly social fun and is virtually indestructible.

I used to think of money as something like a running fuel supply. A life simply burns dollars, and if I want a big, fast, high-horsepower life (and who doesn’t?) then I need to be pumping significant quantities of dollars into it on a regular basis. In this context money seemed volatile, short-term and scarce. In other words, my money situation was a matter of how much I had coming in right now compared to what I wanted to spend right now. My strategy was to find a source of fuel that supplied me faster than I would be burning it once I was living like I wanted to. It always seemed a few years away.

I had grown up thinking like that so it didn’t strike me as odd. Under that mentality, the money situation always seemed to be a temporary condition, like weather. There were nice days and crummy days, heat waves and cold snaps — and the fact that it rained two weeks ago seemed like it ought to have nothing to do with whether it was warm today.

One example of this mentality is the common habit of going out to eat on payday, as if the timing of the incoming money should have anything to do with whether the purchase is sensible or not. It implies an overly zoomed-in view of the relationship between money and happiness.  

Now I think of money as bricks and planks, not fuel. Every expenditure comes out of a large but finite pile of all the dollars that will ever be available to me, not a running pipeline that comes from somewhere out of sight. My mentality now is to build something with my dollars, rather than fuel something with them. The thing I’m trying to build is a life that’s set up to generate happiness on its own, as an inevitable byproduct. Every dollar I burn — rather than place somewhere where it will contribute to my happiness for a long time — is a lost opportunity that will affect what I am working with for rest of my life, to some degree.

When you ask yourself if a given prospective purchase will really improve your life in any lasting way, most of the time the answer will be an obvious no. Being bad with money means you use discretionary dollars to buy good feelings. Being good with money means you use them to build a life situation that generates them every day.

For example, last year I reduced my booze-buying and restaurant-going by 80 or 90 percent, and I can’t imagine there’s anything I’m now missing because of it. The thousands of dollars I didn’t spend would all have been burned for momentary pleasure that leaves absolutely nothing lasting, other than excess bodyfat. The months of dirty, stressful work it took to earn those thousands of dollars would have been traded for nothing but a collection of pleasant but extremely perishable instants in which I could taste yam fries or feel the buzz of beer.

I did this same kind of judicious non-purchasing in a lot of areas, and instead of fleeting feelings I bought many truckloads of bricks; my savings paid for ten months’ worth of living expenses, which I’m using to build a sustainable business doing what I love doing. It was a major purchase, but it’s also making a reality out of the most important item on my bucket list, and it still probably costs less than what 1970s Steven Tyler would pay for a long weekend’s worth of party favors. My purchase will be raising my daily levels of ease and fulfillment (and lowering my stress levels) every day for the rest of my life.

There are certain hard expenses, such as housing, food and internet access, that will always burn away on a monthly basis, although of course you can make choices that reduce these too, leaving more bricks available to build something with. I bake my own bread now, which costs less than a dollar a loaf, is fun to do, and spares me the paragraph of chemical ingredients found in store-bought bread. It’s not a time trade-off either; it can also be done in less time than it takes to go to the grocery store. I also make great use of dried beans and chick peas instead of buying tins, by using a slow cooker. More bricks for the castle every day.

Of course, I still burn some discretionary money, such as going to a 60-dollar concert once or twice a year, but I do it a lot less because I’m unable to ignore the astoundingly high opportunity cost of trading money permanently for a few hours of quickly-dissolving good feelings. I can get good feelings for free.

Travel is something l still find worthwhile, because I’ve learned to do it frugally, and it always leaves me with better social skills, better photography skills, more friends and contacts, and more insight about what’s important to me. But I’m not interested in sitting by a pool at a resort any more.

I’m playing more cards and board games, and going to fewer movies. I’m drinking less beer and I enjoy it more when I do. I’m eating in restaurants less and cooking with quality ingredients more. I rarely buy books, because I already own so many unread ones, and because the greatest bargain in the history of the world is the library card. I do more walking and very little driving.

None of these changes feel like a sacrifice. I’m actually moving away from a life of sacrifice. I was giving up the important things for the forgettable ones.

***

Photo by Robert S. Donovan

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{ 88 Comments }

Carolyn January 23, 2014 at 12:52 pm

I really enjoyed this article (and will be passing it along to friends of mine who need to read it) – and I look forward to the days when I can apply it more fully to my own life.

I have a hard time with that at the moment – I tend to have short bursts of gainful employment (and most of those are for minimum wage or less) – due to ‘seasonal’ work being the only thing available. I can, and do, save during the time that I am employed, but when I am unemployed my savings disappear to pay for my necessary bills (car insurance, student loans – sincerely nothing frivolous).

That being said – when I DO have income? I don’t save as much as I should, because I know that I’ll be unemployed soon and I like to have a few moments of not feeling completely shit about my lack of income – so I spend some, on some frivolous things.

Help?

Niz January 23, 2014 at 11:57 pm

Love this.

Niz January 24, 2014 at 12:02 am

Your blogs are always appreciated.

Tracy January 24, 2014 at 9:41 am

I loved this and forwarded it on to my husband. The next evening he used it to give a “budget talk” to his 21 year old daughter. She has been working 3 jobs since December, but spends most of what she makes at the mall or eating/drinking out. We think you’re a genius…

Chantal January 24, 2014 at 4:06 pm

Hi David,

This is such a great post, and comes at such a good time for me. My relationship with money has changed quite a bit in the last year or so, and I am continuing to pursue a simpler life that allows me to spend my money on the things that really ARE important to me, like travel. One thing I still need to wrap my head around is that sometimes it’s ok to spend money on things that are really healthy for me. I sometimes balk as spending $100 for a month-long yoga pass (which is truly a great deal), or on ‘expensive’ health foods at the local grocers, but then, as you said, will go out to eat a couple of times a week and spend almost that without really thinking about it much. It’s definitely a mental thing that I need to get past!

Oh, and I am also a huge fan of library cards, have had three over here in Australia. It’s a great place to learn, relax, and get out of the heat for a bit for free! :)

Anthony January 24, 2014 at 7:02 pm

Most people’s house is full of things and material possessions that we never use, we could spend our money more wisely, every bodies dream is the financial independence and having enough money to buy what they want and do the things they enjoy.

Diogo January 25, 2014 at 5:16 pm

Another great post David!

I totally agree with you. Quite often we get into spending habits that add no value to our well being or happiness ( trading valuable time/money, for worthless experiences).

By bringing consciousness to our spending we can make smarter choices as you so brightly described in your post. Money can give us freedom (choices, places, experiences…), but can also chain us like nothing else.

I guess a self evaluation is crucial here. Before changing spending habits a close examination on what makes us happy and what are we trading our money for is highly valuable. I’ve noticed that things that give me the most pleasure cost very little and that my most precious asset is my free time.

But it is simply amazing how easily I get dragged into spending money on things that I don’t even agree, either because of wife and kids “needs” or social events that I end up joining because I want to be around this or that friend, or to get a temporary flimsy satisfaction…

No doubt a work in progress – of very important nature.

Anon February 4, 2014 at 9:15 pm

Wow, your blog post has hit me in the face like a pile of bricks. I work in a high-pressure industry and make an excessive income but I’m also hiding a massive and unsustainable drug habit that I’ve spent years fighting. Even though I know there are mental and physical health issues that underlie my condition, I also accept that I have choice, every time I score and use, it is a choice. Every time I take on a new, higher-paying contract to service this lifestyle, it is my choice.

Besides from substance abuse, you can imagine my spending habits are pretty awful. I have spent so long living like this that I cannot imagine how to live more frugally again, even though I know that I once did and I was as happy, if not more.

I have spent more time than I care to think about fueling my own physical and spiritual destruction and like many in my position, there is a great deal of guilt attached to those memories, of all the things I could have done with the money I wasted. Two days ago, I visited my father’s grave, it was the five-year anniversary of his passing. I’m living the life that he lived, perhaps even a little worse because I make more money than he could ever imagine.

I want desperately to believe that my life will not turn out the same and that when I die, I won’t leave behind a mountain of debts to my loved ones and a legacy of wasteful, excessive and ultimately self-destructive behavior when I could have been building a life of contentment and peace.

David Cain February 6, 2014 at 2:11 pm

I don’t know much about your situation, but it can’t turn out the same unless you continue the same behaviors every day. Since you recognize it now, I think you are already in less danger of continuing. You can’t do much about the money you’ve wasted, but with a high income you have a fantastic chance to do a lot of building in a short time. You have the raw materials to create a very stable life. The substance habit is obviously a very big leak in the canoe, and the first thing to address.

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