Two Money For the Rest of Us podcast listeners are struggling with spending money. The first listener is 22 and lives in Canada. He feels as if his money is going everywhere such as saving for a house, car, and retirement, but very little goes to things he enjoys.
The second listener is 46 with a $2 million net worth, but in his case, he finds he doesn’t enjoy spending money on himself. He is willing to spend money on his wife and two children, but he still finds himself feeling tight, fearful and worried about money and his business, even though he has plenty of wealth and is close to his goal of financial freedom.
Enough For What?
The good news is both of these listeners are aware that they have some issues surrounding how they spend money. They are awake to their situation as philosopher Henry David Thoreau would describe it. In this podcast episode, we consider the standard these listeners should use to determine how much to spend on themselves.
The Stoic philosopher Seneca in his second letter wrote, “Do you ask what the proper limit is to wealth? It is first to have what is necessary and, second, to have what is enough” The challenge with Seneca’s statement is figuring out how much is enough.
Dr. Samuel Alexander in his book, Just Enough is Plenty: Thoreau’s Alternative Economics, says in order to answer the question how much is enough, we need to first answer the question, “Enough for what?” or put another way, “What should we want material wealth for?
What to Spend Money On
It turns out figuring out what we want is a lifelong question and it takes money to discover what the answer is. The key is not to spend money on luxuries that bring fleeting pleasure, but instead to spend money on tools and education in areas that we are curious about. Items that enrich our inner life and bring us joy as we acquire new skills and understanding.
Working with those tools and acquiring skills takes time. It takes reflection. It means getting rid of distractions and clutter so we can focus more time and resources on figuring out the purpose of our life. We come to know ourselves as we spend money on ourselves.
A Simple Spending Filter
Duane Elgin in his book, Voluntary Simplicity provides a simple filter to help us decide where to spend money: Does what I own or buy promote activity, self-reliance, and involvement or does it induce passivity and dependence?
Joy comes from being active in the pursuit of purpose. Spending money in areas that help us to discover and pursue that purpose is okay. We get into trouble when we spend money on luxuries that we think will make us happy or will help us stand out and be admired by others. Those cravings for happiness and acceptance are rarely satiated by buying more stuff. That type of spending tends to foster more wants, which requires more money and more time to earn that money.
Instead, we need to pursue a path taught by the voluntary simplicity movement, of which Henry David Thoreau, could be considered one of the founding members. “Simplify, simplify, simplify,” he wrote. Or as Duane Elgin put it, pursue, “a manner of living that is outwardly more simple and inwardly more rich.”
Enjoy the episode.
An Economist Walks into a Brothel: And Other Unexpected Places to Understand Risk by Allison Schrager
Letters From A Stoic by Seneca
Just Enough is Plenty: Thoreau’s Alternative Economics by Samuel Alexander
The Voluntary Simplicity Movement: Reimagining the Good Life Beyond Consumer Culture by Samuel Alexander
Voluntary Simplicity: Toward a Way of Life That Is Outwardly Simple, Inwardly Rich by Duane Elgin
A Guide for the Perplexed (Harper Perennial Modern Thought) by E. F. Schumacher
A Philosophy of Walking by Frédéric Gros
Hamlet’s BlackBerry: Building a Good Life in the Digital Age by William Powers
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Welcome to Money for the Rest of Us. This is a personal finance show on money, how it works, how to invest it, and how to live without worrying about it. I’m your host, David Stein. Today is episode 278. It’s titled, “You Have Permission to Spend.”
Struggling with how much to spend
I recently had a conversation on LinkedIn with a listener to the show. He wrote, “I’m struggling to wrap my head around the concept of feeling as if I’m living wealthy. I’m 22 years old, working in the financial industry in Canada. I was wondering what kind of standard I should be holding myself to in regards to saving and spending on the things I enjoy. I currently struggle with saving for my first house, I’m coming up on needing a new vehicle, then also trying to grow my investment portfolio. It just feels like I’m putting money everywhere without getting to enjoy these prime years of being young.”
Then I got an email from a Plus member. I profiled his portfolio in one of our weekly Plus episodes. He’s 46, different stage of life. He has $2.2 million of net worth. After-tax income is about $340,000 and living expenses for he, his spouse, and his 2 children, is about $90,000, $129,000 if you include debt. So making way more, taking home way more than they’re spending.
He wrote, “I also find myself more stressed about finances even though we are in a very strong position. It is mostly stress from myself as I am always trying to look around the corner for the next disaster. Being self-employed, I think I developed that healthy fear over a number of years. But now, it probably has tipped over into unhealthy. I think sometimes when you work so hard at a business or job and really focus on spending way less than you make so you can invest it, it’s possible to become too tight or fearful. I don’t actually enjoy spending money much anymore, outside of spending on my kids or wife, unless it is an investment. I’m trying to learn to be more grateful because I know so many are way less unfortunate. That said, I’d be interested to know if others have dealt with this sort of thing and how they dealt with it.”
That’s quite the contrast. The Canadian listener just getting started, says, “I’m putting money everywhere.” Saving a bunch of money, but wants to know the standard of living with how much to spend on things he enjoys. While the Plus member doesn’t enjoy spending on himself at all, he feels tight and fearful, worried. How do we decide how much we can spend? How much are we allowed to spend?
Permission to spend
When I first started as an investment advisor, I worked with a woman—we jointly helped out some endowment and foundation clients. We were at the airport once, it was after a client meeting. We’re sitting at a restaurant, and she said that prior weekend she had been out with a friend and they were shopping, I don’t even what they were shopping for. But at one point this coworker of mine found a, I think it was something for her house, vase or something somewhat expensive, $100 or so, and was getting ready to buy it and the woman she as with stopped her and said, “Do you have permission to spend?” My coworker was taken aback because her friend meant “has your husband given you permission to spend the household money?” The coworker was somewhat offended by that.
Now LaPriel and I, we talk about big purchases that we’re considering making, but we don’t have to get permission to spend, I mean every household is different. But sometimes we don’t give ourselves the permission to spend. We’re trying so hard to save and help out our family members that we don’t even find it enjoyable to spend on ourselves because of the worry or the fear. In this episode, we look at how to grant ourselves permission to spend and what to spend it on.
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