Ways to Spend Money

by Eric on June 4, 2010

Every time I spend money, I try to mentally place the expense in one of five categories. Those categories are:

Helping myself and my family
Helping other people
Needs and material comforts
Memory creation (experiences)
Waste

Some expenses don’t categorize neatly. It’s not an air tight system. It’s just a useful way for me to think about money.

I don’t spend much effort on this. I just kind of casually consider it whenever I spend. I really only have one goal in doing this, and that is keeping the ‘Waste’ category as small as possible.

Waste

Waste is any expense that doesn’t fall under one of the other categories. The way I think about it, if I spend money and the result is not something in one of my four good categories, then I’ve wasted that money.

The whole point of this mental classification is to minimize wasteful expenditures.

Helping Myself and My Family

Helping myself and my family encompasses expenses that meet two criteria. First, it must improve my family’s condition. Second, it must compound.

If I buy an asset intended to provide us with money, that investment falls under this category. Examples are shares of stock or CDs. (The money that investment provides will compound).

If I spend money to develop some useful skill that enriches our lives, that expense falls under this category. Skills that increase earning power, make us more efficient or effective, or help us create memories qualify. (I’ll explain memory creation in a minute). Examples are learning to cook, fix cars, program computers, dance, take pictures, pick stocks, etc. (The money, efficiency, or enjoyment the new skill provides will compound).

If I spend money on something that helps me get more money, that expense falls under this category. An example is gasoline to get me to work. (The money I earn will compound).

Helping Other People

This is charity. This can be giving to organizations that help people or directly to individuals. I prefer that this money compound, but I don’t insist. One thing that I do insist is that this money be used for genuine help and not for enabling destructive behavior.

Needs and Material Comforts

Needs are food, shelter, water, clothing, healthcare – things necessary for survival. Material comforts are things like air conditioning and transportation.

This category is tricky for two reasons. First, it can be tough to distinguish between an acceptable material comfort and a wasteful extravagance. There is no clear rule. I have to be careful with these.

Second, sometimes it’s tough to know whether something belongs in this category or in the ‘Helping Myself’ category. For example, fuel to get to work belongs to ‘Helping Myself.’ I also need food and clothes to work, but I put those in ‘Needs and Material Comforts’. So what’s the difference? I don’t dwell on it. Neither of them belongs to ‘Waste’, and that’s really all I care about.

Memory Creation

Memory creation just means doing something fun that I and my family will remember fondly. Taking a family trip, going to a rodeo, or going to a concert are all examples. It just has to be fun and memorable.

An ordinary outing to the movies doesn’t count. Neither does sitting around and watching television. It has to create memories that me and my family will cherish forever.

I used to think that spending on fun, memorable experiences was wasteful. As I’ve gotten older I’ve learned better.

Don’t misunderstand me: I’m not saying creating these memories requires spending money. The memories come from doing fun activities with the people you love. There are plenty of these activities that don’t require money. But I’ve learned that money can facilitate these activities, and when it does it is money well spent.

Incidentally, if you think (like I foolishly did) that these kinds of memories aren’t valuable, I have a couple of exercises for you. First, think of your fondest memory. It can be something from childhood, high school, wedding day, whatever. Now imagine that some scientist will pay you to allow him to erase that memory from your mind. It will be as if it never happened. How much would you charge him? I bet it’s a lot.

If that doesn’t make you appreciate fond memories, try this. Go talk to an old person whose health is declining. Notice her demeanor when she talks about ordinary stuff – the news, food, the weather, etc. Then notice her demeanor when she talks about fun times with her children. How much do you think she values those memories?

Conclusion

This is not a rigorous system, and it’s certainly not all that I do to scrutinize my expenses. It doesn’t say anything about the proportions among the categories. But it does give me a framework for identifying and eliminating wasteful expenditures. Of course, that leaves more money for spending on the four good categories, which is the whole point.

I hope this will be a useful framework for you to consider your expenses.

Advice For New Parents

by Eric on February 24, 2009

Molly and I had our first son last August. It’s been great. Nothing is more fun for me than spending time with my family. It’s also been challenging.

I’m a fanatic planner/preparer. Before Ejay arrived, we went to the classes, read the books, watched the videos, etc. etc. All that helped. But babies are very complicated, and they’re all different. This inherent complexity/variability makes it impossible to fully prepare for a baby. In retrospect, there were a number of things I wish I’d known then.

To help future new parents, I’ve prepared a list of things I’ve learned since my son arrived. Ejay is only 6 months old, so I’m sure I’ll be learning more. I’ll post more as I do.

Your baby will cry.

For the first couple of days after Ejay arrived I operated in emergency mode. I treated every cry like a fire alarm. “He’s crying! Something must be terribly wrong! I have to figure it out! I have to solve it now!” All I did was wear myself out.

Crying means your baby wants something. It does not mean your baby needs something immediately, you have 5 seconds to figure it out, and if you fail the consequences will be dire and irreversible. Relax, figure out the problem, and solve it. Repeat as necessary.

You don’t have enough batteries.

Every product for babies must light up, beep, spin around, and play a tune. Accept it. Estimate the number of batteries you’ll need, then double it. Then double that. That’s a good start.

The first two weeks is boot camp.

For the first 2 weeks of his life, your newborn will require all your energy. You will feel like you can’t sustain that level of effort. And you will be right.

If you don’t expect the demands to lighten up, you might feel overwhelmed (I did). The good news is that it will lighten up. It gets easier. Just treat the first two weeks like survival mode. Don’t worry about the house, the yard, the laundry, etc. Just care for your family and yourself. The rest of it will be there when your baby’s demands ease up (probably about two weeks). Focus intensely for now, and know that there’s light at the end of the tunnel.

Everyone’s an expert.

Did you know that the act of procreation qualifies you as an expert on all things child-related? And that it becomes your duty to correct anyone you find doing it wrong? And that everyone’s experience should match your own?

It seems that everyone who’s reproduced successfully has an opinion about what babies should eat, wear, do, watch, etc. Many of these people feel compelled to educate everyone else on the right way to do it. And a lot of them will get fighting mad if you disagree. So don’t. You have X amount of energy. You can spend it caring for your child, or you can spend it arguing with adults.

By the way, don’t judge these self-appointed experts too harshly. Generally, they don’t believe that they know it all. They just want to believe that they did (or are doing) the best thing for their children. One way they can feel that way is by having other people agree with them. So don’t let them sap your energy. Just be cordial, listen, consider what they say, and continue caring for your child in the best manner you know.

Improve incrementally.

Be attentive for anything you can improve. Maybe you can raise/lower your changing table a few inches. Maybe you can go to bed a half hour earlier or later. Maybe you can keep the baby’s room 1 degree warmer or cooler. Are your curtains open or shut? Fans on or off? How’s the baby’s bath water temperature? Does he sleep better in cotton or polyester? In which brand of diaper does he sleep better?

So many variables affect how your baby feels and how you feel. Every time you can extend his sleep a few minutes, save yourself a step or two, or avoid searching for something that’s lost, it adds up. String together enough of these small improvements and you’ve bought yourself (and your child) an easier, more pleasant day.

That’s what I’ve learned so far. What do you wish you’d known when your first child was born?