Make your bank account larger by spending more.
Yes, you read that right, by spending more.
I learned about this from Morgan Housel's post on spending. Morgan Housel is my favorite author on money management, and I highly recommend his book Psychology of Money. He is also a partner at The Collaborative Fund and a former columnist at The Motley Fool and The Wall Street Journal.
Now, a little detour to evolutionary biology class… There’s a theory in evolutionary biology called Fisher’s Fundamental Theorem of Natural Selection.
The idea is that variance equals strength. The more diverse the population, the more likely it is to evolve new traits, thus making survival easier and the possibility of thriving higher.
What the heck does this have to do with more money in your bank account?
Quite a bit.
Like most Americans, once your basic needs are met, chances are that you are spending money for the following reasons. There is diversity in your spending but it is not resulting in strength because you havent figured out which categories can make your financially stronger if you double down on them and cut the rest. After all, evolution is about keeping what works and killing the rest right?
Spending Categories:
Instant Gratification—Ever stop at a Buc-ee's Gas station and end up buying three of their 'cute' T-shirts or order Pizza or Chinese food because you feel like it? Yup, that’s instant gratification—spending just because you wanted to, then and there.
Ken & Barbie Spending - We all know the couple that seems to have their sh*t together. High rollers with perfect hair. Don’t you just hate them for being effortlessly awesome? This is the money you spend to keep up with your peers and people you admire and like. Oh, and the money you spend to keep up with people you hate. You will show em right. I will have you know I have never done this myself (Trust me, …….I am lying).
Social Signal spending: Spending you do to announce your arrival at the country club you recently joined, the updated Highlander since that is the new Batmobile for the growing families, or pictures of your summer vacation in the Turks and Caicos. Spending that declares where you are on the societal socio-economic ladder.
I deserve it spending: Spending as a representation of how hard you’ve worked and how much stress went into earning your paycheck. You deserve that Gucci bag for working so hard, right? For me, it’s a spree at the Fragrance Du Bois perfume store.
Social aspiration spending: Spending to feel like the 'rich' people. European vacations were once the exclusive playground of the rich. But now that is on your itinerary for next year's summer vacation. So is owning a summer home, a boat, and a spare luxury vehicle. People like to mimic others, especially those who appear to be living better lives. Always been like that and always will be.
Emotional spending - These can be big or small. A few years ago, my wife and I saw a listing for a home with a pool and a lovely backyard. We just had our first child. We could see the trees in the backyard where we could put a swing for her. Visuals of all the fun we would have in the pool and that backyard flooded our brains. We were emotionally sucked in. And for that, we went $50k over our budget and bought the house. That was an emotional purchase.
Mystery spending - You even feel so bored that you get in your car to go to Target or Marshall’s to look around? These are the shopping bags that mysteriously end up in the trunk of your car because you were bored.
Identity spending - Are you a watch person, an antique car collection person, or a shoe collector? We all have things we associate with our identity. For me, it's niche expensive perfumes and gym equipment. #VanityCheck
Ok, here is why these categories are essential to understand.
None of these are inherently bad. But unless you have unlimited cash flow or your last name is Musk or Bezos, you cannot keep spending in all of these categories.
And then there is a bigger problem. You have no idea what kind of spending will make you Happy (this is happy with Capital H). What should you buy? Should you travel? Should you renovate the house? There is no single answer to these questions because everyone’s different. People generally default to what society tells them – whatever is most expensive will bring the most joy.
But that’s not how it works. This is the ‘you get to spend more part’ that you have been waiting for …
Use the categories above to understand how and why you spend your money. For the next month, try spending money on tons of different oddball things to find what works for you. Reasonably and responsibly of course ;) It could be travelling or fancy AirBnB in your home town. It could be a night out to fancy resturant or staying in wearing your cozy Pjs and ordering cheap pizza. It could be buying that bag or video game console. Or it could be donating to a cause you feel passionate about.
After each experience, rate how much lasting, genuine value and joy did you get out it.
Find out which one or two of these categories bring you true joy. Find out spending that really matters to you or your loved ones. Then go all in on those and cut the rest mercilessly.
Implement the idea 🦉
Another way is to pick up your last credit card or bank statement and label your spending based on these categories. Question which purchases brought genuine pleasure or value. Identify any patterns.
I did this myself last week. I learnt that I was overdoing the ‘I deserve it’ spending. I overspent on clothes and perfumes as a justification for diligently working hard, but it didn’t bring me any lasting joy. Half of the perfumes I purchased were simply because that is what people with money are buying. Ouch!
Would love to see in the comments if there are other frag-heads like me ;)
Hope this was useful in sparking some ideas around how to look at spending.
Money can be a taboo, but the closer you look, the more you can uncover the real WHY behind your behavior. You spend money every day. That is why studying your spending patterns can become a consistent and reliable feedback method for where you are mentally and emotionally. It can tell you how fulfilled you feel or where you feel empty, and try filling it with retail therapy. It can uncover what you really want and give you the understanding and permission to go after it.
Much Love
PM
