Basic Frugal Tools-The Three Kinds of Spending

The Experiences of a Lifetime

Discretionary Spending

Once your basic needs are attended to, if you still have any money you can begin to buy the things you want. Many people jump the gun on this process, skipping to the wants without first securing the needs. This is something a frugalista will avoid doing. Using two economic principles and one psychological principle will help sort out your discretionary spending.

Limited Resources and Opportunity Cost

The principle of limited resources should be self-evident. Even the GDP of the world is a finite number. We live in a closed system. I don’t need to belabor this point—your bank statement tells the tale. Opportunity cost means that for every choice we make, given our limited resources, we must forgo some other choice.  If we buy an apple for a dollar, we can’t spend the same dollar on an orange. The opportunity cost of the apple was giving up the orange.  The principle applies to time as well. If I spend the day at the museum I can’t spend the same day working on a project. The opportunity cost of the museum is the time not spent on the project.

When we decide what to do with our free time or our discretionary income, we have to rely on our value system. As with every other choice you make in your life, nothing but self-knowledge and taking the time to reflect on your own values can really help. But knowing what the real choice is can make it easier.

The Three Types of Spending

Your three choices are to spend on products, to spend on services, or to spend on experiences. In our hyper consumption culture there are literally thousands of choices in all three categories vying for our dollars. There are no right or wrong answers, but there are choices that will give you a deeper connection to your community, or add to the meaning in your life. That is where values come in. If I had extra money, and I was thinking of buying a new couch (a product)getting some help on my landscaping (a service) or taking a trip to the Grand Canyon (an experience), I would choose the trip. Even if I was sitting on the floor. Even if my yard was a jungle.

That is not to say that buying thing or services is always wrong. It is just easier to get them other ways. I could get a couch on Freecycle.com and I could trade for the landscaping. But even if I use all my frugal wiles getting to the Grand Canyon and enjoying it is going to require a cash outlay.

Every so often, if we are lucky enough to have any “extra” money, we may just really want a NEW pair of shoes, or a manicure, or whatever. And there are things it makes sense to purchase in both the products and services categories. A computer for instance, in products. If you can find a used one that you trust not to be a complete lemon, great. Otherwise, just buy a new one. Or, when it comes to services, someone to do solve your electrical system woes if you don’t have a barter partner who is an electrician. Doing it yourself is dangerous and probably inefficient. Letting it go could cause you to lose a whole freezer full of food. So, just pick up the phone already.

These hypothetical situations are meant to illustrate how complex our spending choices can be. Running your own finances is like driving a car, with the same requirement that we pay close attention and react quickly to changing conditions. But, if you have the choice, why not throw a party with that extra three hundred dollars, and let the old TV go for a little while longer. It is all about creating wonderful memories. Very few services and almost no products can really claim to do that.

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2 Responses

  1. Prety good conter of yours.

  2. What a compassionate idea, budgeting in some money for enjoyment. Soul food is just as important as food for the body!!!

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