Finding Value

Every dollar is equal, but the value you get from each can be wildly different. How can you figure out whether you’re truly getting the most bang for your buck, and when the value is low enough that it’s not worth purchasing?

Let’s think of three categories: needs, highly desirable things, and things that would be nice-to-have. This is, of course, excluding things that you’d really rather not have, like dolls that give you the creeps and your least favorite type of vegetable.

“Needs” is a category that can encompass more than just food, clothing, and shelter. For the modern person, a stable internet connection, health insurance, the ability to see friends and family, some form of recreation and a way to relax, etc., all can qualify as “needs” if without them you would be miserable. The mistake some people make here is assuming that just because something of this sort is a need, they should get the best one they can “afford”. This is very obviously false in the extremes – just because you need food, clothing, and shelter, does not mean you need Kobe beef, designer clothing, and a McMansion. But where is the most basic level that your need would be satisfied?

Honestly, you may not know the true level until you experience it. Elon Musk found out he could live on a dollar a day for food. “You get really tired of hot dogs and oranges after awhile”, he says, but $1 a day afforded him his absolute basic level of food need. Your level may be different (I personally can’t go below a ~$4/day diet of in-season fruits, veggies, eggs, and rice without experiencing negative health effects) but anything beyond this falls into the “highly desirable” category, and is no longer a need. For some items, you may not even feel deprived if you only satisfy your most basic level of “need” (Obviously Elon Musk has lower standards of food than I do, but similarly I probably have a lower standard of technology/internet access. If I have enough internet access to check my email and google things, I’m good.)

Don’t be tempted to upgrade the level of a need just because “It’s a good deal”. If the super fast cell phone plan is only $5 more per month than the basic plan, that’s still MORE (and, honestly, with a bit of research, you could probably find a cheaper cell phone plan – prepaid plans and wifi calling can be used for super cheap). We’re looking for your absolute minimum of a happy, healthy life here. The exact sum of all this is a bit irrelevant, but it can be fun to know just how little you actually need. My boyfriend, currently a bit unemployed and pursuing artistic goals, takes comfort from his calculations that he could happily live on $20/day all-inclusive.

The “highly desirable” level is where you *might* consider that cell phone plan upgrade. This is where the occasional meal out fits. The nice gym membership instead of just using water bottles as weights. Taking classes in your favorite hobby instead of just trying to figure it out from the internet. Things that make your life noticeably easier and happier. These are fine to spend money on, as long as you are aware of the trade off that’s happening (because now you have to *earn* that extra money, too.)

The “nice-to-haves”? The “it-was-on-sale” or the “I-might-need-it-someday”? Pretty pointless. I guarantee you most things that you purchase because they’d be nice to have will go unused or unappreciated. At worst, they’ll be a hassle if you ever have to move, and you may even feel guilty every time you look at them and note that you haven’t used them in ages. If you actually do end up needing it, buy it then. Not now. You’ll save more money in the long run by not buying most things than it costs to buy that one item full price.

Now, I’ll leave you with a TEDx talk by the architect of my favorite Tiny House, hOMe.

The Secret Art of Budgeting

I’m not against budgets. They are a useful tool, especially for people starting to understand and get a hold of their finances. But they’re just that – a tool. They help you design a lifestyle worth following, but once you figure that out, they tend to be able to go on autopilot.

If you’re going to do any one thing about finances, it’s tracking. Mint and YNAB are great tools that do this for you. Tracking can be a great way to figure out what’s wrong with your expenses in the first place – do you seem to spend an abnormal amount of money at Target? Were you unaware of how much you actually spend on sushi? Tracking can show some of the most egregious expenses you have, which are – thankfully! – often very easy to cut back on. The biggest gains can be made just by being aware of where your money goes.

Now, your budget is your realistic ideal of how much money you will spend each month. Forgetting about the numbers you found by tracking, think about what would be a reasonable amount to spend in each category. Don’t be afraid to do a little research – the USDA has low/moderate/high guidelines for how much the average individual spends on groceries. Check local market rent/price for the smallest house/apartment you would be comfortable living in, and don’t pay more than that. Allot a modest personal allowance for entertainment, eating out, and consumer goods.

Once you have your budget, now you can check it against tracking. If they are virtually the same, great! You can pretty much go on your merry way, or only concern yourself with the obvious gains you found earlier. But if your finance goals and your current financial habits don’t line up, it’s time to take a hard look at your lifestyle and habits. Once you find a sustainable habit to be more in line with your budget, you should generally be able to actually forget about the budget, as long as you keep to that habit.

For instance, groceries. Let’s say I look at the USDA chart and judge, that as a 22-year old city-dwelling female who likes eating well and grassfed beef, I decide my monthly food budget should be $300, or around $10/day. It’s pretty clear that making a habit of buying lunch or dinner out is Not An Option. Just a sandwich these days costs $7. So I make it a point to bring my lunch every day – and the internet has advice for me! I could bring in easy to make mason jar salads, fun bento boxes, homemade freezer meals, or simply bring in leftovers from the previous night’s dinner. The same thing goes for dinners – I might be able to fit in a take out night once per week, but I should get in the habit of cooking dinner every night with in-season produce and quality but inexpensive cuts of meat. Again, the internet is full of frugal recipes and tips on how to optimize grocery shopping.

The glory of this approach is that, after having designed my budget and finding a sustainable habit or guideline, I just have to follow the habit and the finances will follow. Try applying it to big purchases, too! Home location and size can make a big difference in lifestyle costs (be they financial, physical, or environmental) by forcing certain habits and tangential expenses.