At the Money: Smart Spending vs. Not Spending (June 18, 2024)
Spending Scolds will tell you that a sailboat, a sports car, or even a latte will be your financial ruin. Is this accurate? Focusing on the cost without considering whether you can afford the items and what memories they create is the wrong calculus. In today’s ATM, we discuss how to spend intelligently, within your budget, on the things that hep create lasting memories.
Full transcript below.
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About this week’s guest: Carl Richards is a Certified Financial Planner and creator of The New York Times Sketch Guy column. Through his simple sketches, Carl makes complex financial concepts easy to understand. He is the author of The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money.
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TRANSCRIPT
Smart Spending vs Not Spending
[Music: Baby, you’re a rich man. Baby, you’re a rich man. Baby, you’re a rich man too.]
Some people are constantly exhorting us NOT to buy this or that thing that might set you back a couple of bucks. We’re warned against spending on things these people deem extravagant: Don’t buy a sailboat; never buy a new car; NEVER, ever, buy a sports car. The spending scolds even tell us. Don’t spend $5 on a latte. Suzie Orman insists it’ll ruin your retirement.
I’ve looked at the numbers on all these criticisms and to be blunt, I find them wanting and notwithstanding of close scrutiny. I’m Barry Ritholtz and on today’s edition of At The Money, we’re going to discuss how to buy what you love and still live within your budget.
To help us unpack all of this and what it means for your bank account, let’s bring in Carl Richards. He is the author of “The Behavior Gap, Simple Ways to Stop Doing Dumb Things with Money.” His recent essay, “The financial benefits of buying what you love” is exactly on topic for us today. So, so Carl, you’re known as a pretty modest guy.
You don’t flash around fancy watches or drive expensive cars. Generally, you’re not a self indulgent guy, but you went out and purchased a $5,000 Moots trail bike. And as you wrote, You said it was one of the best financial decisions you’ve ever made. Explain.
Carl Richards: Yeah, for sure. And we could also get into the fact that I do own an F, well, a big truck, which we know people say is a really bad idea, so I’d love to talk about that too.
Barry Ritholtz: Yeah, but you live off in the, you live out in the wilderness. Your truck actually touches dirt. It’s the people who live in suburbia and the big trucks never leave the pavement. Why are you spending all this money on off road capabilities that you’re not using?
Carl Richards: I’m with you there. We use it routinely and regularly, and it’s one of the greatest sources of happiness in my family because of the places we go.
So, the mountain bike – and by the way, that mountain bike is would cost a lot more today – if somebody bought the same bike today.
Listen, this idea, it’s so crazy to me. This idea that we might know what brings other people happiness and joy and that it’s our job to tell them that it’s ridiculous to buy their morning latte or the truck or the bike is just, I get equally as upset about it as you do.
So the bike, I just had a simple calculation. You know, it was, it was, um, cost per unit of fun. Mm hmm. Now it’s my trail running shoes that I use to help me gain elevation in the mountains almost every day. Those shoes are, they’re a $150 running shoe. And if I take the amount of fun I get from those, they’re one of the best purchases I ever bought.
Versus maybe for me, like a water ski boat. A water ski boat that I use three or four times a year. I mean I grew up water skiing on the lakes here in Utah. I, I think it’s one of the funnest things I could ever do, but the cost is so much higher. When I divide that per unit of fun, I don’t get the same outcome.
So my thought is like, look, the greatest source of happiness that we have – and the, the research is pretty clear about this – is memorable experiences with the people that we love. Right? Going on a bike ride with my kids or my wife, is one of the most important things I could do. So I’m going to spend the money.
Barry Ritholtz: And you’re pointing to something that there’s a lot of data from the world of psychology and behavioral finance: Experiences are the things we remember and are worth spending money on as opposed to just accumulating baubbles for their own sake. What people seem to forget about are, the purchases that allow us to share time and experience with friends and family.
Carl Richards: Totally. And it’s important to note, those do not have to be expensive. My trail running shoes are not that expensive. And in fact, let me tell you this super interesting story. I grew up, I never traveled anywhere. We didn’t have any money growing up. I don’t even think I had a passport until I was married.
We had this year, where, because of some speaking engagements and the book launch, we, we traveled a lot, and I took the family to a lot of places, I think we went to three or four different countries. And my son, who was like seven or eight at the time, at the end of the summer, I was like, hey Sam, what was your favorite memory from the summer?
And we had been to, you know, Amsterdam, and we’d been to Paris, and we’d been to all these cool places. And he thinks for a minute and he says, “Do you remember that time we just threw rocks for an hour in the pond out behind the house?” And I was like, bro! He’s like, yeah, no, that time.
So it doesn’t have to be expensive and it can be. And if you’ve got the money and you love an amazing Italian sports car. Who am I to tell you that that’s not right? Now
The problem I think is when we buy things we think will make us happy, because everybody else tells us they’ll make us happy. And then we discover that we don’t really like them.
Well, we can talk about how to run experiments around that. But I think this whole thing starts with getting clear about what actually brings you happiness. Well, once you experiment and find a thing, spend the money for heaven’s sakes. What’s it for?
Barry Ritholtz: So that’s one of the things I think some of the Puritans get wrong. They focus on the cost, not the budget. If you can afford a sailboat, and you love sailing, well, go buy a sailboat. It seems that all this finger wagging about spending any money of any sort is really misguided.
And by the way, the first boat I bought was a short sale during the financial crisis that I think I paid $20 grand for, split with my brother, and could probably sell it today, 15 years later, for exactly what I paid for it.
So it’s not just a function of the dollar amount; It’s, can you afford that, that item, and what sort of pleasure is it going to bring you and your family? Are we focusing on the wrong things? If you can afford a nice bike, and you’re going to use it, why not make that purchase?
Carl Richards: Yeah, it’s so interesting. I think there’s a piece of this, and I’ve been trying to unpack this. For a long time. I just had a conversation on my podcast “50 Fires” about this exact thing. I think there’s a thing a piece of this you pointed to Puritan Um, I think there’s a piece of this that’s related to this endless praise and nobility of delayed Related to this endless praise and nobility around delayed gratification And it could even be all the way back to like when I get to heaven When I get to heaven I will be happy And I, I think we just need to start realizing, like, look, what’s wrong with being happy now?
And how can I view something as an investment instead of an expense? And the investment has a return. The return of spending an hour with my son throwing rocks in the lake. Right? How do you calculate the value of that return? The return of the 50 bike rides I went on with my daughter out my back door on that bike.
How do I even put a number to that return? And what I think we miss is like, who cares? And what’s so funny, is we all know this. Like, it’s cliche at this point to say, like, on your deathbed, you’re not gonna be thinking about your bank account. Right? You’re going to be thinking about the time and the experiences that you had with the people you love.
Right? So we know it. I think we just, we just have a hard time doing it. And then the last thing, it might be related to some of the fear. Like our whole industry largely is built on fear of the future. Are you saving enough? Are you going to have enough in retirement? We’ve built into people this idea that if you’re not doing everything you can, you are going to be destitute, alone, and living under a bridge.
Right, and so to unpack all of that takes a lot of work.
Barry Ritholtz: Let’s talk about quality. You made reference to the advantage of buying something that’s high quality, very well made once, rather than repeatedly replacing a bunch of lesser quality items that don’t last, don’t go the distance.
Carl Richards: There was an old quote and I can’t remember it so I’ll just paraphrase it, it was something like, we can’t, I remember it was something like, we can’t afford to buy cheap things.
Barry Ritholtz: That makes sense. Let’s talk cars. I saw this headline, it cracked me up. “Buying a new car is like taking 40, 000 and setting it on fire.” If you can afford a new car and you want to go pick the right car and the right color that you want. What’s the problem buying a new car?
Carl Richards: It’s so interesting to me like like that I have a friend who you’re if it rains outside and you’re in his car your feet get wet Like the like the floorboards are rusted, right? [I had one of those in college]
I mean he loves it and cars are not a thing cares about in fact I had this conversation Morgan Housel – Morgan says he like always he always think it was on the podcast. He always feels like he should be a car guy He was a valet in LA like he was so every couple of years, he runs an experiment, which I just thought was beautiful.
When he’s on a business trip and he’s renting a car every couple of years, he’s like, huh? You know what? It’s an extra 200 bucks for the day. Give me the Porsche. And he says it doesn’t take him even getting off the lot before he’s like, you know what? I admire this thing. It’s beautiful. It’s amazing. But you know what? It just doesn’t give me what I need.
Now, he said, if it did, I would buy it, but it doesn’t and so I think some people it’s just not a thing. That’s fine And I think what this all comes down to is getting clear about what’s true for you. Not necessarily what the Instagram people say or what the scolds say either way. Run some experiments to find out what brings you value you may love.
I mean, I really want this truck. I want an old truck to drive around. Well, I found out the best way to have an old truck to drive around was buy a new one and keep it for 30 years.
Barry Ritholtz: Beat the hell out of it — that’s, that’s exactly right. So to wrap up, when we look at the world of consumer purchases, there are a few lessons to be learned.
Obviously, stay within your budget. If you can’t afford something, well then don’t buy it. But if you can afford something, Buy quality. Buy the things that will give you experiences with your friends and family and loved ones. Buy what you love, you won’t regret it.
I’m Barry Ritholtz, you’re listening to Bloomberg’s At The Money.
[Music: Baby, you’re a rich man. Baby, you’re a rich man. Baby, you’re a rich man too. How does it feel to be one of the beautiful people, People don’t imagine me, Happy to be that way.]
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