Maximize Your Joy Per Dollar Spent
How to look at the opportunity cost of your spending.
Regardless of how much or how little money we have, we only get to use each dollar once. I know… bummer.
Once we realize that, it becomes easier to navigate our spending. We understand that every time we use a dollar, we miss out on the opportunity to use it somewhere else. That’s called opportunity cost.
What’s opportunity cost?
We deal with opportunity costs all day every day. When I choose a restaurant for dinner, I don’t get to eat at all the other restaurants I didn’t choose. When I say yes to a project, I don’t have the opportunity to use that time for something else.
The same goes for our money. The point of money is to have and experience what we want in life. Right?
So let’s look at our expenses in terms of the things that make us the happiest. It’s a great way to get some perspective on how we want to use and spend our money. Here’s how to do it.
List out things that make you happy.
Write down some things (big and small!) that make you happy. Maybe it’s turmeric smoothies, growing your net worth, dinner with friends or weekend getaways to new places. This will look different for each of us and there is no right or wrong answer.
The important part is that we are honest with ourselves. We want to choose things that actually bring us joy - not things we think should bring us joy. Don’t overthink it - just go with your gut. You can always do the exercise again if you think of something else.
How much does each cost?
Look at each item on your list and write down (on average) how much each costs. Costs can vary, so do your best to estimate an average. What does your turmeric smoothie cost? When you go out with friends, what does it usually cost (don’t forget tip!)?
If you are using a goal as your “happy” item - like increasing your net worth - how much of an increase would make you happy?
Pick an item on your list.
Look at your list and choose one item. I recommend going with the item that makes you the happiest right now. For our purposes, it’s important that this is something that you could buy more of with more money.
For example, a gym membership wouldn’t work because if we had more money, we wouldn’t want more of the same gym membership.
If the item makes you happy and you’d want to get more of it if you had more money, that’s the one! That’s your opportunity cost.
Test some expenses.
Now we’re going to test some of our expenses against our opportunity cost. Why? Every time we make a decision to use or spend our money one way, we don’t get to use or spend it on something else.
When we look at our expenses in terms of our opportunity cost (or something that makes us really happy) we can really start to maximize the joy we get per dollar spent That sounds nice, right?
List out a few expenses you’d like to test. Not sure if a subscription is worth it? Thinking about cutting cable? Write down any and all examples that make sense for you.
Now calculate what each of those expenses cost you on an annual basis. If the subscription is $15 per month, that’s $180 per year.
Now look at that $180 per year in terms of your opportunity cost (or your happy item). $180 per year could be three dinners with friends, 18 turmeric smoothies, or half of a weekend getaway. Write that down.
Is the expense worth it?
Now that you see the opportunity cost, decide if it’s worth it to you. There’s no right or wrong answer. The goal of this exercise isn’t to make you feel guilty or to pressure you to let go an expense you want to keep. The goal is to help you take an honest look at where your money is going so you can decide if you’re spending it in the most ideal way for you.
It doesn’t have to be all or nothing.
If you decide an expense isn’t 100% worth it to you, that doesn’t mean you have to let it go completely. You might decide to decrease the cost of your membership by downgrading or doing something less frequently.
Also, when we do something less frequently it actually becomes more special.
An opportunity cost challenge.
This week, look at each of your expenses in terms of your opportunity cost. Are they worth it to you? Is there another way you’d rather allocate your money?