Some links below are affiliate links, meaning we receive a commission if you make a purchase using the link. Phippen Tax only recommends books Xa or Patrick personally read and enjoyed, or products they personally found useful.
When evaluating personal finances, most advice emphasizes how to spend less and save more without addressing how to spend money. An underlying assumption that spending is the easy part exists, but spending can cause stress, particularly if your spending does not match your underlying values. In order to spend in the way that is best for you, evaluate your money values, make some happiness spending goals, and use the structure of a high-yield savings account (HYSA) to work towards them.
The path to buy happiness along the road to financial freedom is by having at least two spending priorities dedicated to happiness spending: one recurring expense and one unpredictable expense. While both may be happiness spending goals, they require different saving and spending logic to fully fund and enjoy.
But before you even get there, you need to figure out which happiness spending goals to prioritize in the first place!
Prioritization Techniques
There are infinite ways to spend your money in the modern consumerist society, so if you do not decide how to spend your money, an advertisement for the kitchen gadget you never knew existed or your friend with the really great weighted blanket will decide for you. Nothing against kitchen gadgets or weighted blankets, but you should decide for yourself.
In The Four Hour Workweek,* Tim Ferriss’s Dreamline activity is a great way to determine your spending priorities. He challenges the reader to list five material goods they would like to have, five things they would like to be (like fluent in a foreign language, an artist, or able to shoot a three-pointer), and five things they would like to do. From there, he prompts the reader to pick the four dreams that “would change it all.” After writing out your dreams, he forces you to prioritize.
Not only is the activity valuable to facilitate reflection on your most important priorities, it is also worth reconsidering every so often as you grow, change, or become what you hoped to become.
Some of these dreams can cost no money, but if you have four expensive dreams, I would recommend picking two: ideally one that has a recurring cost and one that has a more sporadic and less predictable timeline. Once you pluck your favorite dreams (that cost money) from a collection of competing dreams, you have identified your happiness spending goals.
Stop Buying Distractions!
Takeout may be the reason you cannot afford a trip to Aruba every year. It is not difficult to spend $5,000 a year on takeout, Costco “conveniences,” Target “decorations,” or whatever else. It is even easier to spend $2,000 on coffee or emergency chocolate (I know!). Despite the flak the latte factor concept receives, David Bach runs through the story, math, and an explanation of compound interest in The Automatic Millionaire and reveals it was actually his student who exclaimed that her lattes were costing her more than $1 million over her working years. (Disclaimer: I have not read The Latte Factor, and The Automatic Millionaire covers the story and concept thoroughly enough, in my opinion.) Even if the cost of your coffee, plus the additional money you would have if you invested pre-tax dollars rather than buying coffee, plus the match your employer would give you on those dollars would not fund your retirement or down payment on a home, it would buy you a luxury stay in Aruba.
This is a topic where I am harsh, but this is an area where I initially failed and then corrected. I taught high school math as my first full-time job after college and made approximately $36,000 my first year. I was smart enough to start aggressively saving for some future housing needs and retirement. However, my expenses were so low (miss those $250-$440 rent days!) that I did not plan how to spend those extra dollars to maximize my happiness. I ended up buying Panda Express and Starbucks for fleeting moments of joy all the time during my first semester teaching because I could afford it.
Luckily, by January, I got smart and a bit crazy. I started writing down every single dollar I spent. I realized saving to play at rugby nationals in the spring and go to baseball games in the summer was more important than Panda Express and Starbucks. Thanks to cutting back on the unimportant spending, I will never forget sitting on the outfield grass to watch the fireworks at Dodger Stadium or winning a national quarterfinal match on my 23rd birthday. As wonderful as they are, Panda Express and Starbucks are unremarkable by comparison.
Recurring Expense Planning
Financial planning for recurring expenses involves making room in your budget and spending on happiness. However, recurring expenses may not be precisely consistent even if you can plan for them. Tickets for a specific sport are an easy example because sports have seasons: If you are a football fan and want to attend a game every month, that is only an expense through the fall and winter. You can still use a HYSA to spread that cost throughout the year and reduce the seasonality of the financial burden. Rather than allocating the full ticket price to your spending for each month in football season, you can contribute approximately half of the price of a ticket throughout the year and start withdrawing in the fall.
Unpredictable Expense Planning
Unpredictable expenses are more difficult to plan because they are unpredictable! However, unpredictability does not mean impossible. Here is how to plan for your unpredictable expense:
Identify the soonest you would incur the expense. This is the earliest you would take the trip or attend the concert or game.
Determine what it would cost for you to go. This may mean ticket costs as well as any ancillary expenses including lodging, transportation and parking, food in excess of your typical food budget, and any other conveniences or fees.
Divide the total cost by the number of months until that event. That is the amount you should contribute to a HYSA.
If you come up with an amount that is completely impossible, then you may have to accept a slight delay. (For example, decide to start saving to see the 2024 NCAA Basketball Final Four because you do not have enough time to save for the 2023 Basketball NCAA Final Four.) If your long-term goal has greater flexibility, like a vacation to Abu Dhabi with no specific event attached to it, then you can also flip the equation: Given how much you are willing to contribute each month and the cost of the trip, when can you attend?
Which variables carry higher weight is up to you and vary event-by-event. My only advice is to make sure you do not miss the big moments. Always having my HYSAs stacked has provided me the opportunity to attend some unforgettable events with creative travel arrangements and planning. You will not regret attending the World Series in Boston on Tuesday, flying back to DC on Wednesday, and flying to rugby nationals in Atlanta on Thursday. But you may regret missing out on memories.
*If you are someone who wrote off the tactics in The Four Hour Workweek since it had a gimmicky title and “must not be possible,” I invite you to talk to me about how much I can magically squish into a workweek, the work flexibilities I have obtained by using some tactics in this book with a bit of confidence, and the freedom that both of these skills provide to pursue multiple passion projects. While I pick-and-choose and combine some ideas from The Four Hour Workweek with a number of other time-management skills, productivity methods, and habit stacking techniques including Cal Newport’s Deep Work and James Clear’s Atomic Habits to create the right balance, The Four Hour Workweek is an important piece of the puzzle. Your own balance will be different, but you can only find it if you start looking!
Comments