In the pursuit of FI, it’s necessary to limit your spending below your income. As IBFree and other FI readers know, this is the only way to build wealth. So it’s no surprise that in the FIRE community there is a lot of focus on how to limit your spending. However, what outsiders don’t realize is that the main focus is how to maximize your happiness based on the spending you do. It’s not just about limiting spending on everything. After all, money is only a resource and optimally using that resource for your happiness is the goal. This means being very introspective and conscious about your spending so that you aren’t wasting any hard earned dollars. This is an admirable goal for everyone since there is no downside to maximizing your happiness per dollar of spending.
This FIRE community focus of only spending money on what gives you maximum happiness ties in nicely with the explosion of happiness research in recent years. Much of the research has been focused on money and happiness including how people spend their money and some interesting findings have become clear.
One of the findings that is cited often is that you are better off spending money on experiences vs things (spending money on others is another important aspect but is out of scope for this article). Is it really that simple though? Let’s dig into why experiences are better than things.
One aspect is that happiness is heavily influenced by comparison to others. With material things, there is often a “better” more expensive item that your friend or neighbor has. Or a newer one. Or a more exclusive one. With experiences, it’s much more personalized, largely because in involves different people. It’s not as easy to compare your vacation with your neighbors (although keeping up with the Jones’s can happen here too).
Another aspect is the so-called hedonic adaptation, where we humans adapt to material things we own relatively quickly and then take them for granted, barely noticing them after a brief post-purchase boost of happiness. After that, we need the next purchase fix from the next item. With experiences, you gain memories. Many times these memories get even better with time as you look at old photos or tell the story with your spouse at a dinner party.
So clearly experiences are better to buy than material things.
But what about when these get mixed together? Here is where it gets more complicated than it appears in the popular press. Even the more rigorous academic happiness studies don’t seem to delve into this area. What I’m referring to are experiences that are enhanced or even enabled by material things. Maybe it’s ok to buy “things” when they make an experience possible or much better?
So what are some examples of good material purchases then?
Sports equipment is a good one. You can’t bike without a bike or golf without clubs or ice climb without crampons and ice tools or backpack without a backpack. And better equipment will make your hobby more fun.
Tools are another one. If you’re a passionate woodworker or like to work on cars, then you will need a large collection of good tools. It wouldn’t be as much fun to borrow tools all the time or be limited in what you could do because of a limited set of tools.
Nice kitchen equipment is another good one. Using a sharp, well-balanced chef knife makes food preparation a joy. Cooking for your family or entertaining friends is a great way to spend your time and if some material items make it a nicer experience, I think it’s okay to buy some things.
The list goes on.
It gets a bit more difficult when it comes to things like beds or clothes or big expense items like cars and houses. Some argue that since you spend a lot of your day with these things, this is where you should spend your money. However, the research says this is wrong even though it feels logical. The problem is that most of us get used to these things pretty quickly and so it stops boosting our happiness. “Use” of these material thing is too passive and too frequent. Your mind relegates them to background noise unless you are able to make a very conscious effort to overcome this natural tendency. This is a place where you need to really analyze yourself and see if this is something you will really appreciate on a daily basis.
If you’re a total car fanatic, and every time you start the engine or go for a drive anywhere, it brings a smile to your face, it’s worth prioritizing this in your spending. The same for your house. However, make sure you are being really, really honest with yourself.
Back to the research on “experiences”. Why are these highlighted as so good? I find it strange that much of research in this area doesn’t really define experiences or material things very carefully. However, there seem to be two aspects of the “experiences” involved in this type of research.
One is people. It’s clear that relationships are a huge factor in happiness and experiences are typically with other people. They aren’t usually referring to solo travel for example.
The other is the fact that experiences tend to be more unusual than material things. This gets around our mind’s adaptation to anything that becomes familiar. Thie “experiences” being used in the happiness research is rarely referring to spending on frequent experiences. Spending money on a weekly massage or weekly skydiving jump would quickly drop down in the happiness per dollar equation.
More often it’s referring to things like vacations or other one-time experiences. Even if you go to the same location on vacation that someone else did, your experience will be different. You will have done some different things. More importantly, you will have gone with different people, which changes the experience quite a bit.
So when it comes to happiness-inducing “experiences”, some are better than others. Novel experiences are better. Those that require planning are better (a lot of happiness comes from the planning and anticipation of things like vacations). Experiences involving other people are better.
So back to material things. Here, just like with experiences, there are general rules to follow if your goal is happiness (is there any other goal really?). Passive things are worse. This is the material equivalent of retiring to passively watch TV only to die a few years later. It won’t make you happy. Plus you get used to passive items via hedonic adaptation and it no longer provides much happiness benefit soon after purchase. In fact, it can decrease your happiness as you need to store or maintain the items, adding to the clutter and burden in your life. There are several examples that fit into this category. Most collections, whether it’s shoes, expensive watches, figurines, or whatever else are generally less happiness-inducing unless it gets you really engaged in a new community with a similar passion. Many kitchen gadgets fall into this category. Many home or vehicle improvements cost a tremendous amount of money but have limited influence on your day to day happiness.
The best material things need to help you be engaged in some active life passion of yours, or strengthen close relationships with others somehow.
You also need to prioritize based on your specific personal passions. Not just that you want something. But that you really, really want it. You’ll use it. You’ll care for it. It will bring you joy over and over. One good test is if it requires maintenance. If you don’t want to do the maintenance, it’s hard to argue it’s really important to you. Don’t buy a house with a big yard if you don’t want to spend hours a week mowing…they come together as a package and you have to want the whole package.
The area people get into real trouble with material things is that they start to want items in too many categories. The golf clubs that rarely get used. The waffle maker neglected in a cabinet. The fancy mower that dies an early and expensive death because oil changes were too much of a hassle to do. The best brand of cooler, the nice house, the full-featured car, the fashionable clothes, the big TV and the list goes on. If you start to buy too much in too many areas……then bye-bye financial independence anytime soon.
What you need to do is pick a few areas and mercilessly avoid the rest. There is a story about Warren Buffet that I think it useful here. He was providing advice and asked the person to list their top 25 goals. Then he asked them to select the top 5 out of these 25. Warren asked them what they would do with this second priority list of 20. The answer was that they were still important but would only get worked on when time was available since the focus was the top 5. Warren then said this was the wrong approach. The list of 20 should now become the “avoid at all costs” list until the top 5 were accomplished. This is a good way to think about prioritizing. It’s relatively easy to prioritize things top to bottom. It’s much more difficult to actually say no to the lower priority items. I see this all the time in my corporate job because it’s so hard to say no to opportunities. At the same time it’s necessary because if you don’t focus and starve the lower priority items, more than likely you will achieve poor results in everything, regardless of how hard you work.
Here’s an exercise to try. If you already have a lot of stuff, tell yourself that if you buy something else, you must get rid of something you already have. Better yet, get rid of two existing items. If you want that new shirt, you have to donate two of your existing shirts. If you want to pick up a new sport, you have to drop an existing one (and associated equipment) to make room for the new one. This mental barrier will help you understand whether the new item is really important to you.
If you’re really introspective and honest with yourself, like the many FIRE folks that are good at this, you will find it easier to prioritize. When it comes to material things you can’t buy too many things and for the things you do buy, you can’t spend a lot for high quality or performance in each category. You need to prioritize based on your loves. There is a simple but very impactful quote that says “you can have anything you want but not everything you want”. This is a great quote to remember. For frugal people (remember frugal means only spending on the things that provide enough personal value) that are really good at this, you find some strange contrasts that really demonstrate specific things they value vs things that aren’t that important to them. And you’ll find that this can be very different person to person.
They live in a small apartment but spend a lot on travel. Or have a nice house but one used car for the family and rarely travel. Or thrift store clothes but a nice computer. Or very few clothing items but of high quality and timeless style. They seem to have a rather strange mix of a few often cheap things in the areas that aren’t important to them and often expensive high quality items in areas they are passionate about.
In my case, I am in a good position financially and still making a good income so I could buy a large range of things if I wanted. And I do spend money, sometimes a lot, on the things that are important to me. But in other categories I don’t.
I have a fancy Italian coffee grinder and espresso maker. I love the process of making the expresso and using a quality system. But I also maximized my purchase buy getting the lower end of the high quality grinder and espresso maker. The prices rise dramatically after that but the benefit goes up only a little. I also buy unroasted beans (~50% of the price of fresh roasted beans of the same quality) and roast them using a $20 popcorn maker that works really well. I almost never go to Starbucks anymore. I get a better product, that’s engaging and fun to do, and is quite a bit cheaper too. Those are the win-wins I look for.
I also have very high-end camping and climbing gear. Really good gear makes a big difference in the experience (and safety). Plus overall, it’s a relatively inexpensive hobby if you use the stuff enough. I’m such a nerd that I have a spreadsheet tracking how much I use the items I buy. If I don’t use it enough to get the cost per use down to where I want it, then I don’t allow myself to upgrade that item. I’m better off focusing on getting out more.
I have nice things, especially those that I actively use when cooking a meal, in the kitchen. Like my Japanese chef knife, and Le Cruset dutch oven (bought as a second at an outlet mall even though I can’t find any flaw in it). Both of these, and several other items, should last my lifetime so I pay for quality and durability for these things. I also enjoy my gas stove versus my previous electric one so the money difference if worth it to me in that area. But I also have 15 year old plain white Ikea plates and bowls, and inexpensive cups for the kids, plus low cost silverware. These do the job and last a long time and we don’t see the value in spending a lot of money here just for looks.
My wife and I also rarely eat out or go to the movies. We would much rather make a meal at home, have some wine and beer and watch a movie at home. It’s a better experience for us and it just happens to be much lower cost as well.
I drive a 14 year old vehicle that I still love to drive. I keep it (along with all the things I commit to owning) maintained well and I hope to be driving it for several more years. I’ll be sad when I need to replace it. It’s no sacrifice to keep driving it.
We still do not have a bedroom set of furniture. We just have a mix of lower quality items. Although we did recently buy a new mattress from one of the new on-line companies disrupting the mattress industry (which definitely needs it).
We buy older model electronics (usually when then new one comes out and there is a good sale on the older model) and keep them until they no longer work at all.
These contrasts seem strange to many people but in the FI community it’s more common. I imagine IBFree readers are similar. If you’re wealthy you will have many nice things but fewer than “average” for that wealth group and you’ll likely have some “cheap” items that your financial peers wouldn’t have. For IBfree readers with less wealth, you still might find some select high quality items in really important categories and the typical low cost ones in the unimportant categories. Financial peers will tend to have a lot more stuff but at a much lower quality level.
If you have a lot of items you don’t use, or a consistent quality level across all the items you own, you may want to ask yourself whether you are doing a bit too much mindless purchasing. And if you find yourself wanting items in lots of categories, particularly if your desire is for a higher cost option in each category, then your desires are in opposition to your desire for FI. We all have only 24 hours in a day and the world offers endless things to buy in limitless categories. You have to understand the few things that are important to you and spend your time and money there because spreading your time and money too widely will make you less happy in the end. If you really prioritize, you will find it easier to resist purchases in the less important areas while indulging guilt-free in the few areas that are high priority. Then you can get some nice things that you really want but still be pursuing FI aggressively.
You should also reevaluate your priorities every year or so. Maybe the box of scrapbooking stuff you thought you’d use is collecting dust. Be honest with yourself and donate it to someone who will use it. You’ll clear out some clutter and help someone else. The somewhat painful experience of getting rid of things you bought and were sure you’d use (but never really did) will help you think twice when the next new passion pops up. This is why a “cool-off” period before buying is a great practice. Never make an impulse purchase. Put it on your wish list and wait for a while. If you still want it after a while, go ahead (plus you’ll probably find it on sale if you monitor for a while). I’m sure I’m a bit unusual but if I’m not 100% sure on a new purchase, I will keep it my a wish list, research it a bit more, and wait to see how my feelings change. Sometimes I never end up getting it. Sometimes it’s replaced with something I determine fits my desires better. And sometimes I end up with the original item, many months or years later. But the process has helped me limit the accumulation of junk that I later want to get rid of. I understand from the research that even though the item I’m obsessing over seems really important, soon after I have it, I’ll become obsessed with the next things I want. It’s a fault of how our brains are wired and it’s worth noticing the emotions and pausing to see which ones hold up over time. You’ll often find the desire for things you really, really want will start to wane in a few weeks or months if you resist the urge to get it right away.
In the end, I don’t think spending on material things are bad and experiences are good. It’s more subtle than that. It’s about knowing yourself and what your passions are.
If you understand yourself well and make very conscious decisions on where to invest your time and money, you can maximize the happiness you get from spending your time and money, whether it’s on experiences or things.
To recap there are a few rules regarding the “best” types of experiences and material things to buy if you’re goal is to maximize your happiness from the spending (which should be the main goal for your money after all).
When it comes to experiences, those that are engaging, unusual, and involve other people are the best.
For material items, the ones that are “used” in an engaging activity, particularly with other people, are the best.
So know thyself, understand the research, and spend accordingly.