Whilst developing a model for getting results in selling and sales, I found myself wondering about what people currently tend to spend their hard earned money on. I wanted to know if we tended to spend money on particular types of things over others and if they aligned with their long term goals. It led me to thinking about what similarities and differences existed in our spending habits. I came to the following conclusions.
As human beings we find ourselves trading our most valuable resource, time, in the pursuit of money, so that we can trade it for things we need or want. There seems to me to be only three broad types of spending that we undertake, they are…
- Spending to “Consume“
- Spending to (exclusively) “Use“
- Spending to “Accumulate” (gain more money or wealth)
Spending to “Consume”
Spending to consume covers things we buy that are consumed in the process of using them. They are only used once, and then they are gone. Consumable purchases are frequently experiential in nature, but not always, and include things like food, and drink, and holidaying. Once they are consumed, they are gone.
We may spend our money in a fancy restaurant, buy a take-away or prepare a meal ourselves at home, and for slightly differing reasons. In a restaurant, our priority may be to enjoy the food, but additionally we want to take-in the ambience and enjoy the company we share it with. It becomes more of an experience than just eating in, and as a result we pay more for it, and are usually happy to do so.
Holiday’s also fall under this category along with everyday things like paying for petrol, electricity, gas, ink or toner for a printer, phone call minutes, insurance, and fares, such as flight or bus and train charges. Gifts also falls under this category, we buy it once and after the enjoyment of giving it to the recipient, the value to us, has been used up, we can’t give it to them twice.
Spending to (exclusively) “Use”
We spend to exclusively use many things, these are things we pay for and then use over and over until they are damaged, wear out or are superseded. Things in this category include the clothes we wear, the furniture we furnish our homes with, even the house we live in, and the car that sits on the driveway. There is generally more longevity to these purchases and on the surface probably offer more value for money. I earlier stated that holidays fall under the “purchase to consume” category, but buying a holiday home, would come under the “spending to use” category, because once purchased it can be used again and again.
You can buy things that appreciate in value like a home, or jewellery or art, or that depreciate in value such as clothes and vehicles.
If we lack the finances to purchase the item outright we can choose to rent or lease many big ticket items, such as cars or houses.
Spending to “Accumulate”
Spending to accumulate covers things like investment purchases which are aimed to make more money. Stocks and shares, property you flip or rent out are included in this category. If you run a business than marketing falls under this category as well as asset purchases. Other things may include websites, businesses, land, property, art, jewellery, precious metals, limited editions, and antiques that are bought to make money from.
Some of these items may also come under other categories. For instance jewellery can be purchased to use yourself and as an investment to sell on at a profit when you have finished with it. Your home also can be used in this way. So some purchases are not mutually exclusive to just one category.
If I look at many of the things I spend my money on I see this….
- Mortgage – accumulate
- Utilities – consume
- Digital TV -consume
- Phone – consume
- Car use – consume
- Insurance- consume
- Food and drink include – consume
- Holidays – consume
- Clothes – use
- Furniture – use
- Home improvements – use
- Studio Rent – comes under all categories, use (rental cost) consume (use the facilities over and over) accumulate (for business)
- Cinema concerts – consume
- Gifts – consume
- Interest payments on loan’s allow you to enjoy the use of something or consume something or accumulate a return, so comes attached to the thing you buy with the money you borrow. If I was to put the actual interest payment under one of the above categories I would opt to put in under consume category, because you can only use it once, and then you pay again.
Having formulated these categories, I wondered which type of purchase offered the best value for money, which led me to ask the following question…
Are experiences better than having possessions?
Experiential purchases largely fall under the first category “Spending to “Consume”, where possessions tend to fall under the “spending to use” category.
Research seems to suggest that experiences are better than possessions for our well-being. although this runs against popular advice. We are taught that buying appreciating assets will make us wealthier because they will be worth more in the future than we paid for them (purchase to accumulate category). Whereas we will have nothing to show from spending to consume. But if we look at it in a different way, at the end of our lives will we look back and value the experiences we enjoyed or the possessions we used?
Dr. Thomas Gilovich, a psychology professor at Cornell University who has been studying the question of money and happiness for over two decades says…
“Our experiences are a bigger part of ourselves than our material goods. You can really like your material stuff. You can even think that part of your identity is connected to those things, but nonetheless they remain separate from you. In contrast, your experiences really are part of you. We are the sum total of our experiences.”
“We consume experiences directly with other people,” says Gilovich. “And after they’re gone, they’re part of the stories that we tell to one another.”
A few popular quotes on the subject are…
“Fill your life with experiences, not things, Have stories to tell, not stuff to show.”
“collect memories, not things.”
“The person who has lived the most is not the one with the most years but the one with the riches life experiences.”
I couldn’t find any quotes that made the claim that having possession was better than having experiences, but I guess it is a subjective judgement for individuals to make.
So what’s the point in using these categories?
Well, I think it’s useful to use these categorise so that we can see the underlying value we derive from our spending habits and see if they align with our wider, longer term goals. We spend a good portion of our lives trying to earn money, so that we can buy the things we want to buy. but do we take any time out to really think about what we are actually buying and why? If you find you’re spending more of your money on consumable purchases, whilst trying to accumulate wealth, are your spending habits helping in the attainment of your wealth seeking goal? not really. In this example you would be much more successful adopting a “spending to accumulate” strategy. Okay, you still have to buy food and drink to survive, but instead of buying those concert tickets, maybe you should move that money into the “accumulation” category of spending.
If your long term goal is to enjoy the great experiences of life, as the research suggests, things like going on holiday or experiencing new things, and new people then some form of experiential purchase may be the way to go, and just something to think about here, many experiences, like enjoying the beauty of nature, don’t have to cost you anything, they are freely available for all, you just have to take the time out and be present and appreciative enough to enjoy them.
I hope using these categories will give you a different perspective to view your purchasing habits from, and allow you to take a more critical view of them.
Remember the most precious resource we have is time, you should ensure it is utilised well, and for a worthy enough purpose. Trading time for money is a must for most of us, so make sure you don’t fritter away your dosh on things that are not really worth the time you invested in earning it.