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I was discussing my monthly expenses with a few friends this weekend – you know, as one does in polite company – and it got me thinking about different camps on spending.
We were sharing how much we each spent in every different category – housing, food, entertainment, the works. We delved into the details of why one person bought a $700 phone and one person went with the free one that came with their contract. We hashed out the various merits purchasing quality flooring vs. cheaper engineered varieties. But as I took a step back and looked at what each of us spent across all those categories, a pattern began to emerge.There were really two main camps sitting at that table.
Some believed that you derive happiness mostly from the highest highs in your purchasing behavior – the max happiness you feel across a few of your most heavily invested categories.
And a second group believed that you derive happiness as the minimum or lowest common denominator across all your spending; your happiness was only as high as the quality of the least joyful category made you.
I’m calling these the Max and Min Theories of Spending.
My observation is that Max theorists seemed to spend significantly less overall. While they splurge on one or two categories, the simple fact was that there were just so many more dollars in total spent against the ‘other categories’ where they were less discerning. Because of this, they came out hundreds if not thousands lower in monthly expenses.
I will say that this partly depends on which categories are the splurges. The major line items for most families are rent, healthcare, and cars, so if those were not any of the splurge categories, the Max theorists tended to spend a lot less overall.
In the FIRE community (financial independence, retire early), I think you tend to see more Max theorists. You buy things that give you “just enough” functionality and eschew the luxe add-ons. It’s easier to maintain a 50-70%+ savings rate when you are a Max theorist, because you don’t feel the need to spend a significant amount on most line items and most line items beyond the big three are all within the same quantum. The largest group of Max theorist FIRE-ers I see are those who love to travel.
I, myself, have a bias towards Max theory because that is what I practice. I wrote an entire article about how I use Max mindset to make my purchasing decisions. I wouldn’t say one is better than the other. I might argue, however, that one is easier to achieve high savings rates with. And if that’s important to you (and I suspect it is), then it is worthwhile to examine what theory you subscribe to and how strongly you feel about it.
So which camp do you identify with? Do you believe your happiness comes primarily from a few areas you can invest in heavily or the lowest common denominator across the many different facets of your life? And does your current spending reflect the belief you want to be practicing?