5 Principles For Getting The Most Out Of Your Spending
New to the personal finance game? Perhaps you’ve already started cutting down on spending, or even taken steps to increase your disposable income. Here’s something else – did you know that you can change the way you spend the money you already have to save money and even influence how happy you feel?
Here are five spending principles to help you save more and even possibly hack your way into happiness:
1. Buy experiences
“Buy experiences, not things” is the kind of glib caption you would expect to find on social media, alongside a photo of some twenty-something looking out pensively into the ocean.
However, there is compelling reason to heed this mantra – according to research, purchasing experiences instead of material items leads to higher satisfaction. While having new possessions can lead to temporary happiness, their novelty tends to fade – we soon become accustomed to new stuff, and they deteriorate or become obsolete.
On the other hand, experiences may be fleeting, but we tend to look back upon them with more fondness than we do material items. Even a negative experience – for instance, getting lost in a city in which you don’t speak the language – could be turned into a fun anecdote once you return. In comparison, it’s a bit harder to entertain friends at a party with say, an anecdote about how your hi-def TV stopped working over the weekend.
So the key is to buy more experiences. However, we’d like to add two modifications to the rule:
- Buy experiences you actually enjoy. “Buy experiences” is a good guideline to minimise wasteful consumption of goods, but make sure you buy experiences you actually enjoy. There isn’t any shame in buying things either, if they improve your quality of life. For instance, if you have to make a decision between a gadget you find useful and an experience you probably won’t enjoy, go for the gadget.
- Buy things that enable experiences. The line that separates experience and thing is not a well-defined one. Some items are experiences in themselves. Buying local street food while in a foreign country, for example, is buying an item, but it’s also adding to your experience of travelling. Other things, like board games, create experiences by facilitating fun social activities.
2. Buy now, enjoy later
Another reason why experiences tend to lead to higher satisfaction is that they provide more anticipatory pleasure. That is, just anticipating an experience could be almost as fun as actually experiencing it. Think of the last time you booked a vacation months in advance – as the date approached, looking forward to it was likely pleasurable, especially if you were stuck at work.
If you’re worried that this will lead to disappointment when reality falls short of expectations, research suggests that the mind conveniently fills in the gaps bridging the two. In a recent study, people reported greater enjoyment levels for both high-quality and low-quality experiences when they had high expectations for them, but not when they had low expectations.
Here’s another psychological trick our mind plays on us when we choose to pay now for future consumption: when we pay up front, by the time the anticipated moment comes around, the pain of having to pay for it is too far in the past to put a damper on our present enjoyment. It’s like receiving a gift from our past selves.
- If you like to travel, book your vacation ahead, and not the week before.
- Blocking out the dates on your calendar for small events periodically (like a nice meal at a restaurant or an affordable vacation) can give you something to constantly look forward to.
- Pay up front for purchases so you can enjoy them guilt-free later.
3. Buy time
If you want to be happier, spend money on things and services that save you time, especially for tasks that you dislike. This isn’t just for the wealthy – people across different income levels and careers who do so report greater life satisfaction, according to a study published last year.
Many people have it backwards, choosing to save money by spending time instead. This isn’t bad by itself – if you have limited income, or if you stand to save a lot of money, then trading time in return for potential savings might be a good idea. However, if your instincts for frugality are kicking in on overdrive, and you find yourself driving to another supermarket twenty minutes away to shave a dollar off an item, then you should revaluate how much you value your time.
One way of answering these questions is to attach a monetary value to an hour of your time by using your income as a baseline. Take your net monthly income (after taxes and CPF contributions) and divide that by the number of hours you work in a month (including lunch breaks) to get your net hourly wage:
Net monthly income ÷ number of hours worked in a month = net hourly wage
Let’s say your net monthly income is $3,300. If you divide that by the number of hours worked in a month (let’s go with 160 hours), your net hourly wage would be around S$20. Knowing this number is useful for making time versus money decisions. Since you now know that you need to work an hour to earn S$20, making a decision like queuing up for an hour to save S$30 on an item becomes easier.
Having said that, it also depends on what you do during the time saved. If you decide to purchase a product or a service to save yourself time, will you be spending that time doing something that adds to your quality of life?
For a more in-depth analysis on how much your time is worth, check out this questionnaire by Clearer Thinking. It can help you make other money decisions, such as how much you should accept for part-time work or how long you should wait in line for a free item.
- Skip the long queues by shopping for groceries online and having them delivered to you.
- Use a laundry service like Laundry Cares and KnocKnocK that include collection and delivery.
- Engage in cleaning services to clean your home once a week.
- Use a service like Amahs on Wheels to run an errand (S$40 per errand on weekdays and S$60 on weekends).
- Tired of queueing for concert tickets or limited edition sneakers? iQueue provides professional queuing services, with packages starting at S$20 for an hour, up to S$350 for 24 hours.
- Get better broadband to reduce loading times and increase overall productivity (assuming of course, you’re using your speedy internet connection to get stuff done).
- Use a time-saving device in the kitchen, such as a dishwasher or a crock pot – just make sure that the time these devices will save are worth their price tags.
4. Buy less, spend more
Despite our gripes about the rising costs of living in Singapore, we have to acknowledge that we live in our age where it’s easy to buy things. Stuff is cheap, disposable and immediately available for repurchase. Unfortunately, the abundance of cheap items can mean that in our attempts to save money, we sometimes compromise on quality.
However, cheap, low-quality items can cost more money in the long run. They break more often and require more frequent replacements. You might also need to use more quantity of a low-quality product to get the same effect as a higher quality one (we’re looking at you, single-ply toilet paper). And many cheap items simply aren’t as nice to use as their higher-quality counterparts.
In some cases, it’s worth avoiding the cheap stuff and spending a bit more to save money in the long run. Here are a few general areas of spending you can apply this rule to, as well as some specific examples from the collective genius at Ask Reddit, who attempted to answer the question: What’s your “it’s expensive but it’s worth it” product?.
- Items you spend a lot of time on or in
Spend more on items you spend a lot of time on or in. When possible, try not to skimp on items that affect your everyday levels of comfort. Spending money on better quality bedding, for instance, could translate into better quality sleep – something surely worth paying for.
As we increasingly depend more on electronical devices to communicate, to get stuff done and to navigate cities, it’s important you don’t skimp on things that could fail on you. You don’t have to get the latest, top-of-the-line gadgetry all the time, but do make sure that you’re buying a reliable device from a reputable brand.
- Tools and appliances
Spending more money on tools and household appliances could save you a lot of hair-pulling frustration. Quality products are more reliable, energy-efficient and much more pleasurable to use. If it’s a tool or appliance you use often, consider springing for a higher quality one.
- Cars and other vehicles
If you’re spending money on a car or other types of vehicles, don’t cut corners if it will compromise your safety. Besides, spending money on proper maintenance and good quality parts will also extend its longevity, saving you more money in the long run.
5. Spend on others
Last, but not least, consider spending money on others. Research suggests that spending on others – whether it be gifts, or donations to charity – provides more happiness than spending on one’s self. Perhaps that old adage “it is better to give than to receive” has some truth to it after all.
We often focus on how to increase our income to improve our well-being. However, if your basic needs are met, it’s also worth paying attention to how your well-being is affected by the way you spend the money you already have. We hope that these five principles will help you make everyday spending decisions that will improve your happiness, and even save money in the long run.