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Understand What Money Buys

opportunity costs means making hard decisions

❝You should be far more concerned with your current trajectory than with your current results.❞ -James Clear

I'm reading a personal finance article about how to save money - one of those articles makes fun of people for spending money at coffee shops. These articles are a dime a dozen, but it gets me to think about how much money I spend at coffee shops. Lately, I've been spending a lot of money at coffee shops. It's been more than I have spent in the past.

I decide to look into it.

Much of my shopping at coffee shops happens during the weekends. I'm in my 20s, and I am studying for an intense exam - the Chartered Financial Analyst exam. I've recognized that I am wildly unproductive when I try to study at my apartment, so I tend to head off to various coffee shops where I know I'll be more productive. Unfortunately, this comes with a high price tag. I don't want to feel like a freeloader, so I buy coffees and snacks to justify my studying.

I can save a lot of money by cutting out the coffee shops and studying at home, but I'd be back to where I started. I'm telling myself the story that I'm going to study at home and instead get distracted and decide to read Wikipedia articles.

I decide to look beneath my spending at coffee shops. I need to figure out what I get for this money I'm spending. I'm sure some people spend money at coffee shops strictly to get a caffeine fix, and for those people, all those articles talking about cutting out coffee shop spending as a ticket to retirement may make sense. However, it's not just about getting a caffeinated beverage. Some people go to coffee shops to socialize with friends (like on the TV show Friends). Other people go to a coffee shop as a break from work. Still, others like the experience of meeting new people.

For me, the coffee shop is a place to study away from my apartment. The only reason I buy the coffee is as a sort of rent payment for using their space.

Perfect! Now I know what I'm getting for my money. Now I can ask myself whether or not there's a more efficient way for me to get what I was buying. I ask myself if there's a cheaper way to find a place to study that's not at my apartment or at a coffee shop. I settled on the public library.

Understanding all the elements that underlie your spending gives you more clarity. It allows you to see how much you're paying for various elements. Most importantly, it allows you to see if there are less expensive ways to satisfy those needs.

look for the best bang for your buck


Most people do not live with intention. Most people float around life from circumstance to circumstance, reacting to whatever life throws at them. This isn't something they do on purpose. If it was on purpose, then it would be intentional. These reactions tend to be like reflexes; they happen automatically.

Living with intention means knowing that you are making a financial decision and understanding what is involved with that financial decision. It's about growing the space between the impulse and the purchase.

live intentionally by increasing the space between stimulus and response


Everything in life involves tradeoffs. This is related to the fact that there are infinite things that we can do with our resources. There are unlimited things that we can buy and an unlimited number of things we can do with our time. The problem is that, even though the uses of our resources are unlimited, the number of resources we have are definitely finite.

That means that we are constantly making decisions, whether we know it or not. It means that an hour spent on social media is an hour we cannot spend with our family. It means that $100 spent on a night out is $100 that cannot be saved for next year's vacation. Please note, this does not mean that we should never spend time on social media or have a night out. All this means is that we need to know what we are trading off so that we can make informed decisions.

managing tradeoffs means making choices


Understanding your tradeoffs and managing those tradeoffs is important when you start to consider why you are making the purchases that you do. Knowing what you are trading off enables you to make sure you are getting the biggest bang for your buck (or your time).

To think about spending in this way, ask yourself what you get in return. In my coffee shop example, buying a cup of coffee could get me a caffeinated beverage, a break from work, socializing with friends, a place to study, a place to work, or a place to meet new people.

If you are contemplating buying a new car, you could be getting transportation, comfort, safety, convenience, or status. Continuing with the car example, you can isolate some of these variables by considering other ways to meet these needs. For example, if you are buying your car for transportation and comfort, can you find another car that gets you transportation and comfort for less money. If you're honest with yourself, you may find that even though you can find the transportation and comfort for less money, you still want the car you're considering. The difference between those two prices may be how much you're willing to pay for status, for example.

Again, there's nothing wrong with paying for status. All we want to do is make sure you are aware of how much you are paying for these various needs.


Financial clarity, then, is understanding that you are making a decision because much of the awareness of our financial decisions has been taken away from us. It's also about knowing what the tradeoffs are and what you were trading off. It's about knowing what needs are being met with this purchase.

With this clarity, you can figure out if there are more efficient ways to meet the needs you were using the original purchase to meet.

Know that you're buying, know what you're buying, and why you're buying. This can take some work, but it's worth it. It helps you live with more intention and clarity.

You get one life; live intentionally.

With gratitude,


If you know someone else who would benefit from reading this, please share it with them. Spread the word, if you think there's a word to spread.

Related Money Health® Reading
References and Influences

Ariely, Dan & Jeff Kreisler: Dollars and Sense

Clear, James: Atomic Habits

Clements, Jonathan: How to Think About Money

Dunn, Elizabeth & Michael Norton: Happy Money

Hanh, Thich Nhat: You Are Here

Kahneman: Daniel: Thinking Fast and Slow

Millburn, Joshua Fields & Ryan Nicodemus: Essential

Newcomb, Sarah: Loaded

Rosenberg, Marshall: Nonviolent Communication

Note: Above is a list of references that I intentionally looked at while writing this post. It is not meant to be a definitive list of everything that influenced by thinking and writing. It's very likely that I left something out. If you notice something that you think I left out, please let me know; I will be happy to update the list.



About the Author

Derek Hagen, CFA, CFP, FBS, CFT-I, CIPM is a speaker, writer, and coach specializing in financial psychology, meaning and valued living, resilience, and mindfulness.


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