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How to Prioritize Your Spending for Maximum Happiness


"Most of us spend too much time on what is urgent and not enough time on what is important."

-Stephen Convoy


Imagine an empty jar sitting alongside some rocks, pebbles, and sand. Further imagine you want to get all the rock, pebbles, and sand into the jar. You start by putting all the sand into the jar, then put the pebbles on top of the sand, but you find there's no room for the rocks.

You might be thinking that this is a silly way to try to get everything in the jar. You're thinking it makes more sense to put the rocks in first. Once you do that you can drop the pebbles in and they'll fit around the rocks. Finally, the sand will fill up all the leftover space.

That makes sense, but if you're like most people you treat your life like the first scenario. We fill out time with unimportant things (sand) and struggle to make time for what's truly important (rocks).

It pays to figure out what your rocks are and make sure you put those in your jar first!

be intentional with your resources

Money and Time Are Limited Resources

Let me state the obvious, you don't have unlimited money. You can't buy everything. And since you can't buy everything you have to make some choices about where you want your money to go. This is true no matter how much money you have.

money is not unlimited

Like money, you don't have unlimited time. Time on Earth is limited. If everything goes well you get to live until you're in your early 80s - longer if you have longevity in your genes. Once your time is up, there are no redos. You can't get more time once it's gone.

our time is limited

Probability and statistics are on your side when it comes to living a long life, but we can't ignore the fact that rare events happen, and they can happen to you and your loved ones. Accidents happen all the time and they can cut our time short.

This knowledge may make you rethink how you spend your time and who you spend it with.

you may have less time than you think

We Have to Prioritize

Since you don't have unlimited time, money, or energy, you get to choose how you use your resources. Every dollar you spend shopping is a dollar that isn't available for a vacation or for retirement. A minute spent watching television is a minute you aren't working on your hobby. Sinking your energy into a social media fight means you won't have the energy to play with your kids.

In effect, by choosing "A" you are giving up "B."

opportunity cost prioritization

You might be thinking that you can have both "A" and "B" either because you can use a credit card or because you make more money than most. And while that may be true it still misses the point. By choosing both "A" and "B" you are giving up on "C."

The point is that you can't have everything so you have to prioritize.

opportunity costs matter

View Through Your Values Lens

So how do you prioritize? If you have to choose you might as well put your blood, sweat, and tears into something you actually like and enjoy. Make it count. That means you have to know what you like and enjoy, and you have to have the confidence to put your resources into what you like while ignoring what others think you should like.

design your life around your values

Understanding what's important to you and who you want to be will give you confidence in your financial life. This newfound confidence will make it easier to spend your time and money in areas that energize you, which leads to more confidence. This positive feedback loop gets you more and more confidence faster and faster.

boost your confidence by being intentional

Determine How Much You Value It

Now that you know what's important to you, how do you decide between two or more things that fit your criteria?

The first step is to try to predict how happy each experience will make you. Economists call this utility, but you can think about it as units of happiness. On a scale of 0-100, how much satisfaction will you get if you spend your time or your money in the way you are thinking about?

For example, perhaps you want to get a new couch. Think about how happy a new couch will make you. Think about this both in terms of the short run and the long run. You might get 75 units of happiness out of the couch immediately, but think about how much joy you will have in six months when it's just another couch. Maybe, in the long run, it falls to 60.

assign utility - how happy will it make you

Step two is to recognize the options you have. Remember, whenever you use your time or money in one area it's not available in another. Therefore, to use our couch example, if you didn't buy the couch, what else would you spend that money on? Maybe saying yes to the couch meant you had to say no to a family vacation. For this part of the exercise, assume you said no to the couch and yes to the family vacation. How many units of happiness would the family vacation give you? Maybe the vacation would give you 95 units of happiness.

We want to explore what the economists call opportunity cost. Do this for every alternative use of your resources.

determine what you give up to get what you want

Getting the Biggest Bang for Your Buck

Knowing how much happiness you'll get is a great starting point, but we have to go further; we need to know how much it costs to get those units of happiness. In other words, take your units of happiness and divide by the cost. The answer to this little math problem will give you how much happiness you get per dollar, and it's a great way to compare experiences and purchases that cost different amounts.

For example, assume the couch costs $1,000 and the family vacation is $1,200. The couch costs $1,000 and gives you 75 units of happiness initially while the vacation gives you more units of happiness (95) but costs more ($1,200). To compare the two you would divide happiness by dollars to find the cost per dollar. The cost per dollar of the couch is 7.5 cents (75/1000). The cost per dollar of the vacation is 7.9 cents (95/1200). The vacation in this example gives you a bigger bang for your buck.

If you don't prioritize your use of resources you're likely to find that you've been filling your life with things that aren't that important to you, or are important to you but cost too much. This is like filling up the jar with pebbles and sand, running out of room for your rocks.

don't fill up your life with unimportant things

Prioritizing based on your values will help you make sure you get your rocks in the jar first, letting the pebbles and sand fill in the spaces after you've already taken care of what's important.

prioritize your values

It can be difficult to choose where we want to use our time, money, and energy. This difficulty can lead us down the path of taking the easy route and filling our jars with sand. Spending a little time to determine what's important to you, and making sure your purchases support your happiness will bring you confidence and peace.

You only have one life. Live intentionally.

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Related Money Health® Reading
References and Influences

Dan Ariely, Jeff Kreisler: Dollars and Sense

Sarah Newcomb: Loaded

Carl Richards: The Behavior Gap

Wikipedia: Opportunity cost

Wikipedia: Utility

Note: Above is a list of references that I intentionally looked at or thought about while writing this article. It is not meant to be a definitive list of everything that influenced my 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.


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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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