I overheard something a while back when I was hanging out with a few people.
And it kind of hit me the wrong way.
One person was commenting on how they preferred to work on digital projects at home, instead of going to coffee shops.
They stated that people who go to coffee shops to buy coffee and work online are “wasting money”. That’s because one can simply make coffee at home for much less money, avoiding the overhead.
As someone who enjoyably produces and consumes content from coffee shops every day (the current temporary COVID-19 situation notwithstanding), I took notice of the statement that people (including me) are “wasting money” when they decide to spend time at a coffee shop in lieu of staying home.
I think it goes without saying that this isn’t an apples-to-apples comparison, since coffee at a coffee shop is both a product and an experience. Otherwise, it could be construed that ever buying anything outside of one’s home is wasting money.
If the end goal is to only save money at the expense of everything else, then one may as well just go live in a tent. After all, anybody could argue that putting a roof over one’s head is “wasting money” when it’s free to live on the streets.
This was really only a passing comment from someone I don’t know, but it stuck with me.
I’ve heard a similar line of logic from many people in many different circumstances over the years.
What invariably happens is, someone will deem something to be “wasting money” when it’s a product and/or service that doesn’t seem worth the money to them.
However, they fail to realize that not everyone in this world values everything in the same exact way.
Value is subjective.
We all want and value different things in different ways. One man’s trash is another man’s treasure. One person’s waste of money is another person’s intelligent and enjoyable use of capital.
To put it simply, spending money is not always wasting money.
All the same, spending money sometimes is wasting money.
This begs a question.
How do we know if we’re wasting money?
I’ll give you the answer.
You need to ask yourself if you received commensurate value from your purchase.
It’s not about how much you spent.
It’s about the value you got for money.
As Warren Buffett has said many times:
Price is what you pay. Value is what you get.
Let’s say you buy a trinket from a store for $5. But let’s also say you’re never gonna use this trinket. In my view, you definitely wasted that five dollars.
Let’s then say you go to a football game with family and friends and spend $400. But you have the time of your life and it’s an experience you’ll keep with you forever. I would not say that’s a waste of four hundred dollars.
You have to decide whether or not you feel like the value for money was appropriate. It’s an individual call.
Now, any cost isn’t just the money we’re spending today. There’s always the “true cost” to consider, which factors in opportunity cost and compounding. As I noted not long ago, even just $1/day saved and invested can add up to a significant amount of wealth over the course of your life.
So my daily coffee shop habit could end up ultimately costing me hundreds of thousands of dollars in terms of lost wealth, greatly reducing the eventual value of the FIRE Fund in the process.
But that doesn’t really change the math for me.
Look, we can’t take the money with us when we die. And there’s no point in being the richest person at your local cemetery.
If you’re constantly forgoing enjoyment in your life in order to save more money, I think that’s the totally wrong way to go. Money buys opportunities, freedom, and the ability to buy the products and/or experiences that add commensurate value to your life. To hoard pieces of paper at the expense of quality of life is silly.
Buffett has said that money simply represents claim checks on society.
If you’re exchanging those claim checks for products and/or services of commensurate value to you, that’s not a waste at all.
However, if you’re spending money aimlessly, in hopes that it’ll make you happy, without any thought as to the value you’re getting for your purchases, that’s probably wasting those claim checks.
It ultimately comes down to value, as well as what you value.
The value is a personal judgment that compares the price paid to the value received.
And what you value is determined by what matters to you in your life.
Both are subjective and individual. Thus, for one person to say that any product and/or service is a “waste of money” for everyone else is foolish.
Living below your means is important. I’m not saying anything to the contrary.
Indeed, I extensively discussed the importance of living below your means in my most recent best-selling book: 5 Steps To Retire In 5 Years.
I live well below my own means. I averaged less than $1,500/month in total spending throughout all of 2019. For two people!
But I could have spent much, much less. I also could have spent much, much more. However, I chose not to do either of those things. My lifestyle is based on an overarching cognizant and personal judgment of value. I feel like the quality of life and value I get for my money is extraordinary. It’s a near-perfect harmony between price and value on the things I value in life.
If you get good value for your money, on something you genuinely value, it’s not a waste of money.
That’s the bottom line.
What do you think? Is this a good way to tell if you’re “wasting money”?
Thanks for reading.
P.S. If you’re interested in achieving financial independence and retiring early, make sure to check out some fantastic tools and services I personally used on my way to becoming financially free at 33!