Recently I’ve been trying to reign in my spending, after doing some deep cleaning of the house and realizing the number of things (food, books, clothes) that I’ve bought and haven’t yet used or consumed.

So I devised a simple metric of four questions for spending money: Will I use it by tomorrow? Will it still have value after one month? One year? And do I have already have one?

One day?

The “buy today if used by tomorrow” question staves off buying things that one doesn’t really need, and an easy determination of need vs. want is whether it will actually be used soon. One will go broke with speculative buying – “but I might need that some day”.

In the era of one-day, and even same-day, delivery from Amazon, there are few excuses to buy until one really needs to. I once commented to someone who was aggressively filling their pantry to the point of stockpiling:

There is a place to store food. It’s called the store.

If you buy before you need, you’ve traded money away – which could have gone up in relative value – for goods that usually do not increase in value. Giving people money now and getting it back later is a loan, so why “loan” money to Safeway, Lord and Taylor, or Barnes and Noble? (They have plenty without yours, don’t worry. And that especially applies to the “rewards cards”.)

One month?

What you are considering buying: how much value will it have in a month?

Now, there is a careful distinction here. I’m not talking about hoarding items, with the idea that “I’ll still have this bracelet in a month”. That’s too much of an emphasis on physical (capital) goods.

This concept is more about something being of value – it continues to provide benefit. And that goes beyond just a material good, and often the value is the memory or impact of the original good.

Here’s a simple example: you have a decision about going out for lunch, narrowed to two options. Subway (the US chain restaurant) or that mom and pop deli across the street. Obviously, question #1 is answered – you’ll eat lunch within one day. Now, question #2 – which meal might you remember in one month? The bland assembly-line Subway sub, or the pastrami on rye from the place where you talked to the Romanian owner about your travels to Bucharest?

So don’t discount the memories as being of value, since they tend to long outlast any “real” thing.

One year?

This is essentially the same as one month, just on a grander scale. So instead of seeking out goods that will be just of value for a month, look for those with greater impact and influence.

In the lunch example above, an alternative might be the Ethiopian restaurant next door, with a meal having kitfo (raw beef) for the first time, which might last for far longer in one’s memory.

Similarly, about spending money on oneself versus others – which has more influence or impact in year, a few dollars spent on oneself, or a Kiva loan to another person?

One more?

Do you already have one of these? (Or something close to it?)

If you already have it, why do you need another version of it? What’s wrong with the current one?

By extension, this means that a person should be cautious about buying multiples of an item, due to The Fallacy of the Unit Cost, especially if they cannot be used at the same time. By further extension, that means: why have multiples of anything? Why not just have one, a favorite, and let other people enjoy the ones you don’t prefer?

Counterexamples

By definition of the questions above, what’s a bad spending decision?

  • Something I won’t use for a while.
  • Something that I won’t have in a month, will have forgotten, and will have had no influence.
  • Likewise, for one year.

Some examples of bad decisions:

  • Going to the same restaurants over and over.
  • Buying perishable items that spoil before being consumed.
  • Stockpiling, hoarding.
  • Buying multiple books and movies at one time.
  • Bulk shopping. (Yes, I’m looking at you, Costco and Sams Club.)

Taste of Reality

I’m not saying the above should be adhered to all the time. There are other costs involved, such as time spent selecting items (such finding three books in one trip to a bookstore), and the tradeoff between having to go out for single items vs. keeping a reserve of them. I’m not suggesting we buy only one roll – or square – of toilet paper at a time.

But from my own observations, I think we lean far too heavily in the wrong direction, spending money as might have made sense in the era before Amazon and one-day shipping, when it was a more significant expense of time and energy to buy things. But that day is obsolete, and our behavior should evolve as well.

Know what you own, and know why you own it. – Peter Lynch

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