Monday, May 22, 2017

Spending is Arbitrary

Spending is Arbitrary
I really like the ChooseFI podcast. While I love me some MarketplacePlanet Money, and Stacking Benjamins, the ChooseFI show is the only podcast in my rotation where the specific issues impacting financial independence and early retirement are front and center. Plus, their opening music is indistinguishable from 1970's porn music, so it's got that going for it, which is nice

Earlier this month, they had a show on the true cost of car ownership. It's a good take on what ends up being a fairly huge expenditure over a lifetime. In fact, they estimated that someone who simply drove their new car for fifteen years before getting a new vehicle, instead of replacing it every five, would net roughly $750k in an investment account over a 45 year period. (Presuming, of course, that this hypothetical car owner actually made the investments for forty-five years, once they had that extra wiggle room in his budget.)

And the math is fairly incredible. Convincing even, when you consider how conservative they were with their assumptions. But they lost me on this quote:
"Don't be stupid. You bought a car: like it, drive it, get your use out of it....Bare minimum there, now at least drive that sucker for at least ten more years. The point of your life should not be to have the nicest car in the neighborhood. It should be to retire in your forties. Right?"
Financial bloggers and podcasters lose me when they take it to this place: outright calling someone's specific spending decisions "stupid," presumably because everyone else ought to follow the same path that we early retirees are. (And man, they love using that word "stupid".)

For one, what you choose to spend your money on is actually immaterial and arbitrary. Spending $300 more than your frugal neighbor on a car is, literally, no different to your bottom line than spending $300 more on rent, or $300 more on travel, or $300 on charitable giving. (Note the lack of posts or podcasts that outline the opportunity costs of giving hundreds to their church every month.)

More to the point, all that truly matters is your savings rate. It doesn't matter what I spend my money on if I have a 50% savings rate (and, gasp, still spend a whole $3,600 a year on a vehicle payment) and some supposedly frugal dude only has a 45% savings rate. I can throw handfuls of singles onto a strip club stage every Friday, and drive there in a leased car, too, and I'm still getting to FIRE faster than the guy who's only saving 45%...even if he does so while riding a fixie in flannel.

There are some easy targets in the FIRE community. The low hanging fruit seems to be cars (God help you if you drive an SUV or a truck), meals dining out, nice clothing, cell phones, and subscription television.

There are also a set of sacred cows: things you can spend a strangely high dollar figure on and still end up getting praised by the devotees of frugality. Want to spend thousands on a bicycle? Go for it. Like spending thousands on vacations? No problem: just hack your way to some nearly free airfare and be sure to call everything "an experience", because you're allowed to spend what you want on those.

I'll note that you're not going to see that many of the same arguments regarding housing. Very few of us bloggers are going to tell you that you should move to a two bedroom apartment, and have the kids share a bedroom, so that you can save $300 a month. And yet, you'll have the same three quarters of a million at the end of forty five years as you would if you saved $300 a month on your car.

Why are some purchases stupid, and others seem to be fine, even when they'd have the same impact on our finances?

I suspect it's because we're a fairly homogeneous group in the FIRE community, so we have patterns in our thinking. We're also a bit of a subculture, so it's natural for us to develop some sort of common criticisms of the consumer mainstreamLook at these fools talking on their $100 a month cellphones, from the cushy seats of their $500 a month SUVs, on their way to some fancy restaurant, no doubt. Don't they see what they're missing out on?

And while a criticism of rampant consumerism is perhaps warranted, there are some pitfalls with this approach.

First, this line of thinking doesn't allow for enough diversity in our approaches. For many, and me included, a car is purely utilitarian. My Toyota just brings me from point A to B, even if I like shifting the manual transmission and turning on the air conditioning. For others, driving a high performance car is a enjoyable experience, on par with playing a sport or jumping out of an airplane. That is to say: something that brings joy. Why is that activity a target for our criticism? 

More importantly, we in the FIRE community are falling into the same pitfall that those on the outside of our community do when they judge us on one singular part of an early retiree's lifestyle, missing the overall picture in the process. Just take a look at any case study in the mainstream media that shows an early retiree's path to financial independence. Someone on the other side of the divide takes a quick look at one part of Mr. Money Mustaches' life (like that bike the guy rides everywhere), and uses that one piece of information as a heuristic to criticize the entire approach he's taken to early retirement. "I could never live like that: biking everywhere like some teenager, never eating a nice meal out, and hanging his clothes outside to dry on a clothesline. That's stupid! What kind of retirement is that?" 

How different are we acting when we take a look over in the next lane, see a nice car, call it dumb, and assume a whole host of other things about that guy's financial situation? 

Now, I'm picking on Brad and Jonathan, as they're clearly just trying to give some helpful, actionable advice to people who want to cut down on costs. And I should admit that I am probably even more prone to shame others for their purchases than they are. Just the other day, I got into an argument with a friend over the fact that some craft beer snobs will actually pay $150 or $300 for a single beer. Like, one bottle, of "rare" beer. I came right out and called that stupid, too. 

But I knew nothing about that beer drinker's financial situation. And I don't really need to, because it doesn't matter if he spends a few hundred bucks on a beer, or on organic groceries, or on lap dances, or on a car payment. It's the same money, it's fungible, and the only damn thing that matters is your savings rate. 

Get that right, and whatever you choose to spend the rest on is cool with me.

Or at least it should be. But if you show me a $300 beer you just bought, I might smack it out of your hands just to see the look on your stupid face.

*Photo is from Damian Morys Photography at Flickr Creative Commons.


  1. "just hack your way to some nearly free airfare and be sure to call everything "an experience"" Ha, that's so true. Travel is always rationalized in the PF world, and yet, imagine the rage that will ensue when I tell people I spent $140 on a pair of jeans. I'll be deemed stupid, frivolous, insecure, and trying to keep up with the Joneses. Nevermind if they're the only jeans I have. Or if there are no gaudy logos that show where they're from. Or that I'm saving more than half my income in one of the most expensive cities.

    People like to criticize worlds they don't understand.

    1. $140 on jeans?! Who are you trying to impress here! ;)

      The irony is that travel is very clearly one of the things we spend on that seems, at least partially, to exist to impress other people. Otherwise, why do we share so many of our photos?

      Speaking of which: I need to finally write a summary of our Asia trip from this winter, so I can make you all feel jealous.

  2. Great post! This is the reason that I always say your money management should reflect your values. For me, driving a nice or financed car is about as far from reflecting my values as possible, but I have to imagine that for some people it does reflect a value. (Comfort? Peace of mind?) As long as you can meet your own financial goals - which I would hope involve providing for yourself after you stop working, FIRE or not - the rest is up to you.

    I also very often encourage my audience (grad students receiving stipends) to move if they realize their housing spending is out of line with their overall budget! Housing spending is a sacred cow almost everywhere in personal finance, I think.

    1. Totally agree about housing being a sacred cow. So while I tend not to agree with "everyone should rent" crowd in PF, I appreciate that they're at least slaughtering the sacred cow.

      And $300 you save there will do the same thing as you save anywhere else. The key is to save where it makes sense for you...not where it makes sense to a bunch of know-it all bloggers.

  3. "I can throw handfuls of singles onto a strip club stage every Friday, and drive there in a leased car, too, and I'm still getting to FIRE faster than the guy who's only saving 45%...even if he does so while riding a fixie in flannel." - Those are words to live by, my friend! ;-)

    I've actually stopped following a number of blogs (MMM included) because I just couldn't stand the whole "your doin' it wrong" attitude. Hey, people: EVERYBODY IS NOT JUST LIKE YOU!!!

    IMHO it's all about the emotional ROI - the trick is to spend your money on things that matter TO YOU, and save money on things that you don't really care about. And since our lives are all so different, no two people will have the same things on their lists.

    I mean, I spend what others might consider to be ridiculous sums of cash on things like organic cat food, a landline telephone, and a carbon fiber road bike. Hell, I spent about $300 constructing a "hail house" to protect my garden from the weather - and I'm pretty sure I won't make that money back in organic tomatoes! But these are things I care about and which bring me great joy.

    On the other hand, I just don't give a shit about things like fashion, or cars, or granite countertops, or fancy vacations - so why waste my money on things that I don't really enjoy?

    The point here is to free yourself from society's prison - not to create a new one!

    1. You always write the best comments, Eco.

      It's a pet peeve of mine: when we pile on the bad decisions regular people make. Yeah, I would not lease a car. But there are a dozen decisions that I make that someone else might think is just not for them. We own two scooters, and a car, and a new house with a pool, and spend a ton on vacations, for example. And you know what? We might both be working just fine towards FI. You can't tell by looking at one line item in a budget.

      I can go out and buy a new car right now and still hit early retirement. Like, really early. It'll slow me down, but not by much. Point is, can't judge a person just by a purchase or two.

      And I love the idea of a hail house. Organic tomatoes from the back yard are, like, surely one of the things worth living for. I'm buying my heirloom tomatoes and they are seriously the highlight of my salad and day. :)

      As you said, better than I could, we're not trading one prison for another. You do you.

  4. This post is great. Seriously. You're so right. We spend lots of money on food and I always feel so guilty in the FI community about it. But it matters to us and is important to us. At the end of the day, personal finance is personal.

    1. You won't get any of that guilt here. We freaking love food. Cooking it and eating out, too.

      I mean, I don't think I can make least poke that I'd feel safe eating. What am I supposed to do? Not eat delicious raw fish is incredible sauce? Are we animals?

    2. Laurie - exactly the same here, I spent nearly the last year trying to justify went my grocery spend was getting so high compared to what other FI blogs have said and what commenters reckoned was possible. I'm finally at the point where I just don't really care all that much any more. We have a kid now so it was bound to have gone up (just a bit more it seems than I'd have liked). It is what it is, we're still saving for FIRE just a little slower than before. I'm not scrimping on decent healthy food and nice beer (not 300 bottles don't worry!) Just to get to FI 6 months earlier.

      DbF - you make a great point as always. I guess a car is just the big obvious thing to go after, and maybe it's one many people do without really thinking about it, which is, let's face it, quite stupid. Or maybe we're all being overly judgy and everyone who ever leased a brand new car did so with all the rational decision making of a cyborg. Hmm... ;)

      I think the only blogger to ever really go housing is ERE, and I say fair play for highlighting different possibilities.

      The thing with short to the point language is that it makes things more listenable or readable. That's not to say I don't like the more nuanced arguments that bloggers like yourself make on a regular basis, but to make a point quickly before many people lose interest sometimes it's good to just say "this is what you need to do!", I'm sure MMM doesn't really think anyone with a new car is stupid (I've heard him say such a thing in a few interviews in fact).

      Cheers :)

    3. Good call on the car being the big honking expense that could be reduced as a quick and easy win. I just think we should stop short of calling it dumb if someone does that, so long as they are finding savings elsewhere.


  5. AMEN!! THANK YOU for saying it, DB40. Like EcoCatLady, I too have stopped reading a number of blogs for that same reason. There may be "right" and "wrong" ways to FI or FIRE, but if we narrow them down to such specifics, we're telling a whole big bunch of people that they can't make it. The goal, I think, is to spend money on what matters most to you while working on increasing that savings rate and net worth. We spend very, very little on clothing, for instance, but I won't sacrifice the sports we spend on for our kids. Some people think that's ridiculous, but it's important to us and to them. So we forego expensive clothing and restaurant meals in order to find the balance we need so we can still achieve FI. Just because certain "big shots" don't agree with it doesn't mean it's wrong. It's called an "opinion" for a reason. There's more than one way to FI

    1. I've changed the blog roll around quite a lot, too. I think there has to be room for diversity in our approaches, right?

      "The goal, I think, is to spend money on what matters most to you while working on increasing that savings rate and net worth."

      Right! And if that means a new car to you, sure, go for it.

      Why assume that someone else's purchases are shallow, just trying to impress people? Maybe driving gives them real joy. I definitely feel that when I'm riding my scooter: it's one of my favorite things.

      Sports are also really big in our house. Our kickball league nights with friends are always a great way to end the week: something about healthy team competition really hits a spot few other things do. And the beer helps.

      And as you said, more than one to FI.

  6. "Supposedly frugal dude only has a 45% savings rate" you're making me feel bad, I might lose my frugality card. I guess a lot FI blogs have to make strong statements to get the readers excited. If they say argue that spending is arbitrary...that's not too exciting (no offense!) I judge people too, I guess it's human nature but I really need to get out of that mindset. Everyone has different priorities and as long as you've got a good financial blueprint and good savings rate, spend on what makes you happy. I have a long commute and don't drive a electric car, but I don't plan on moving closer to work. I like the neighborhood where we live and hope to raise my kids there.

    1. Ha! Nothing at all wrong with a 45% savings fact, that's super impressive.

      I just meant to point out that it's possible to have a supposedly stupid line item in your budget, and still be reaching FI at a faster rate than someone who's riding a bike.

      It's all about the bottom line, right?

      And yeah, spend on what makes you happy.

      I should have worked this into the article, but everyone cites studies that show experiences make us happier than stuff. But that very research they're citing has a wrinkle in it: while most people are happier with experiences, it's not universal. A fairly large minority of the people in the studies really were happier getting stuff (34%)

      For a full third of us, buying stuff (maybe even a nice car) might really a part of a happy life.

    2. Thanks for the link! Chris makes some great points. Experiences are great but I always thought the experience over stuff thing was a little overblown. As with all personal finance questions, the answer is "it depends."
      Also, now when I listen to ChooseFI's intro, I keep thinking of 70s porn music. And that Hot seat intro...hilarious!

    3. Yeah, those are both incredible.

      Every Sunday when it's time for the missus and I to get intimate, I put on the ChooseFI podcast on loop. :)

  7. I just stopped in today to comment on the $300 beer :-).

    Don't always judge an expense by its cover. Here's a dirty little secret. Some people have pretty flexible expense accounts at work. And naturally, if it is expensed, it's free to the imbiber. At one former employer, we used to run events and if we came in under budget, we needed to blow the rest. We would buy some pretty "stupid" things in those scenarios just because.

    Some others (like myself now) are no longer W-2 employees but are 1099 employees, which means we can deduct a LOT of things off our personal taxes as long as it can be tied to business. Having a meeting with a client? Let's get a $300 beer. After deduction it's more like $150 (and you may have generated business...but even if you didn't, you got to taste that $300 beer for a lot less than the typical Joe Schmoe sitting next to you wondering, 'how can he buy a $300 beer?').

    1. Tax hack of the year?

      I think that's an excellent point. For the entrepreneurial class, we have to assume that they're getting a built-in discount with tax deductions on a lot of stuff.

      The next time I hear about the growing national debt, I'm going to wonder how many $300 beers contributed to that. ;)

    2. Ostensibly, those business tax deductions are to encourage spending and thus helping the economy (e.g., I just spent money helping my local brewery, that I might otherwise not have spent).

      The SBA (Small Business Association) members argue that big corporate America gets so many outrageous tax breaks that it is unfair to small business. They argue a little too strenuously, imho, but they aren't wrong. The truth is somewhere in the middle and thus our tax code is laden with incentives everywhere (based on lobbying power usually).

    3. True! But my understanding of tax cuts is that they rarely "pay for themselves". That is, the boost to the economy doesn't generate nearly enough additional tax revenue as it took away. But, so long as we believe in deficit spending, maybe that's okay. :) Discussion for another day.

      And yes, if you follow the tax deductions or subsidies, they all point to a lobbying group.

  8. The PERFECT post to read as I sit in a business class lounger in Doha (Qatar) after paying an additional $1014 for an upgrade for a 14hours flight (the total 48hrs of Australia - Europe return was 'only' $1300). Is it worth it? YES - why? For me, I enjoy the luxury - after a 35 E bed in a hostel last night which was bare bones. I have a headcold coming on, and the luxury of a shower in the lounge, not at 5am in a Paris hostel with a push button shower... I save some (last night), I splurge some (tonight). I will sleep on a flat bed on a plane.

    I'm not even in the retire early camp - which I say repeatedly on your blog, the only FIRE I've continued reading, as you seem a little more 'reasonable!'. I like life filled with the challenges of managing 45 staff, and the industry we're in. I like earning what I do, and paying life's expenses and splurging from time to time.

    1. Aw, that means a lot to be the only FIRE blog in your rotation. Thanks, Sarah! I really need to get back to your blog as well.

      I think one thing a lot of us in the FIRE community don't think about is whether it's really right for everyone. If you think about it for even one second, a crazy race towards financial independence is almost assuredly NOT for everyone. Most people would rather get there at their own pace.

      And if the total return flight was $1300, I'd say that's not really crazy expensive at all for that long of a flight. I personally haven't paid for first class but I have no problem with someone else doing it. What matters is that you think it's worth it, right?

  9. I spend thousands on my furry friends for vet care and treats, yet cringe at eating out and paying full price for clothes. My coworkers spend money on travel, movies and eating out. As long as we are all happy and financially secure, I try not to judge.

    1. Yeah, paying for the well being of pets is something that has a wide variance in our community. We tend to pay a lot more for whatever reason. I don't know if that means we're just unlucky, or if others are simply not paying for the same sort of things like we are (vaccinations, doctors visits, heartguard, etc.)

  10. In their defense, cars and housing are "big wins" that a lot of people don't think about. So absent regular pricey vacations or weekly designer clothes shopping if you want to save a lot with just one decision those are places most people can look first. And they're ones many people haven't thought hard about. Presumably they have thought about charitable giving (though I do have some negative thoughts about church tithing).

    Still, I do agree that the dogma that travel is "good" but a fancy car every 5 years is "bad" is pretty ridiculous. As we say in economics, it's all about where your utility curves hit your budget constraint. We all have different preferences and that is a good thing.

    1. I hear you, Nichole (or is it Maggie?). I definitely think going for big wins is a fantastic approach.

      I think I draw the line where we out and out call a single purchase stupid, when by definition it's arbitrary. Whatever you want to do to cut out that "car payment" amount is up to you, IMO, and it doesn't really matter so long as you find savings somewhere.

      And I love the economics terminology you used there. Very cool way to frame it.

  11. Confirmation bias is very much a thing... Unfortunately, we tend to reject those with some differences from us, and only stick to the ones who are similar. The right way is to look at both sides, before choosing the one that may be right for you ( similar to crossing the street, you look both ways or else...)

    If you enjoy this sort of stuff, you may enjoy Charlie Munger's "Poor Charlie's Almanach"

    1. I should really check that out! Thanks for the tip. I've been looking for a new book to read.

      And yeah, we're all subject to some confirmation bias, including me. I'm sure there are a ton of worse examples from my own judgey behavior...I could probably find a few in my own blog posts.

  12. "But if you show me a $300 beer you just bought, I might smack it out of your hands just to see the look on your stupid face."

    Ha ha. Nice!

    I do agree that there is bias in the FIRE community as to what constitutes a valid FI purchase versus what doesn't. I guess it's because when we look at certain types of purchases, a stereotype of the person who would make that kind of purchase comes to mind. And our brains are weird such that whenever there's a knowledge gap, we like to make our own assumptions to fill that gap. But on the plus side, the person who is being judged doesn't have to give a shit about what the FIRE community thinks of them and prioritize their spending on what they feel is important, as long as it still goes towards their goals. You can't control how other people perceive you or the type of advice you get, but you can control how you react to it.

    So the moral of the story is "control your stupidity and you're all set"! :P