I found a magic word and it's "less."
On September 27, 2011, I decided to run a lifestyle experiment. Nothing radical, just a month of no non-essential purchases, the month of October 2011. These are the lessons from that experiment.
Separate need, want, and like
One of the clearest distinctions a "no non-essential purchases" experiment required me to make was the split between essential and non-essential.
Things like food, rent, utilities, gym membership, Audible, and Netflix I categorized as essential, or needs. The first three for obvious reasons, the last three because the hassle of suspending them wasn't worth the savings.
A second category of purchases under consideration was wants, things that I felt that I needed but could postpone the purchase until the end of the month. This included things like Steve Jobs's biography, for example. I just collected these in the Amazon wish list.
A third category was likes. Likes were things that I wanted to have but knew that I could easily live without them. (Jobs's biography doesn't fall into this category, as anyone who wants to discuss the new economy seriously has to read it. It's a requirement of my work, as far as I am concerned.) I placed these in the Amazon wish list as well.
Over time, some things that I perceived as needs were revealed as simply wants or even likes. And many wants ended up as likes. This means that just by delaying the decision to purchase for some time I made better decisions.
This doesn't mean that I won't buy something because I like it (I do have a large collection of music, art, photography, history, science, and science fiction books, all of which are not strictly necessary). What it means is that the decision to buy something is moderated by the preliminary categorization into these three levels of priority.
A corollary of this distinction is that it allows me to focus on what is really important in the activities that I engage in. I summarized some results in the following table (click for bigger):
One of the regularities of this table is that the entries in the middle column (things that are wrongly emphasized) tend to be things that are bought, while entries in the last column (what really matters) tend to be things that are learned or experienced.
Correct accounting focusses on time, not on nominal money
Ok, so I can figure out a way to spend less in things that are not that necessary. Why is this a source of happiness?
Because money to spend costs time and I don't even get all the money.
When I spend one hour working a challenging technical marketing problem for my own enjoyment, I get the full benefit of that one hour of work, in the happiness solving a puzzle always brings me. When I work for one hour on something that I'd rather not be doing for a payment of X dollars, I get to keep about half of those X dollars (when everything is accounted for). I wrote an illustration of this some time ago.
In essence, money to spend comes, at least partially from doing things you'd rather not do, or doing them at times when you'd rather be doing something else, or doing them at locations that you'd rather not travel to. I like the teaching and research parts of my job, but there are many other parts that I do because it's the job. I'm lucky in that I like my job; but even so I don't like all the activities it involves.
The less money I need, the fewer additional things I have to do for money. And, interestingly, the higher my price for doing those things. (If my marginal utility of money is lower, you need to pay more for me to incur the disutility of teaching that 6-9AM on-location exec-ed seminar than you'd have to pay to a alternate version of me that really wants money to buy the latest glued "designer" suit.)
Clarity of purpose, not simply frugality, is the key aspect
I'm actually quite frugal, having never acquired the costly luxury items of a wife and children, but the lessons here are not about frugality, rather about clarity of purpose.
I have a $\$$2000 17mm ultra-wide angle tilt-shift lens on my wishlist, as a want. I do want to buy it, though I don't need it for now. Once I'm convinced that the lens on the camera, rather than my skills as a photographer, is the binding constraint in my photography, I plan to buy the lens. (Given the low speed at which my photography skill is improving, this may be a non-issue. ☺)
Many of our decisions are driven by underlying identity or symbolic reasons; other decisions are driven by narrowly framed problems; some decisions are just herd behavior or influenced by information cascades that overwhelm reasonable criteria; others still are purely hedonic, in-the-moment, impulses. Clarity of purpose avoids all these. I ask:
Why am I doing this, really?
I was surprised at how many times the answer was "erm...I don't know," "isn't everybody?" or infinitely worse "to impress X." These were not reasonable criteria for a decision. (Note that this is not just about purchase decisions, it's about all sorts of little decisions one makes every day, which deplete our wallets but also our energy, time, and patience.)
Clarity of purpose is hard to achieve during normal working hours, shopping, or the multiple activities that constitute a lifestyle. Borrowing some tools designed for lifestyle marketing, I have a simple way to do a "personal lifestyle review" using the real person "me" as the persona used in lifestyle marketing analysis. Adapted from the theory, it is:
1. Create a comprehensive list of stuff (not just material possessions, but relationships, work that is pending, even persons in one's life).
2. Associate the each entry in the stuff to a sub-persona (for non-marketers this means to a part of the lifestyle that is more or less independent of the others).
3. For each sub-persona, determine the activities which have given origin to the stuff.
4. Evaluate the activities using the "clarity of purpose" criterion: why am I doing this?
5. Purge the activities that are purely symbolic and those that were adopted for hedonic reasons but do not provide the hedonic rewards associated with their cost (in money, constraints to life, time, etc), plus any functional activities that are no longer operative.
6. Guide life decisions by the activities that survive the purge. Revise criteria only by undergoing a lifestyle review process, not by spur-of-the-moment impulses.
(This procedure is offered with no guarantees whatsoever; marketers may recognize the underlying structure from lifestyle marketing frameworks with all the consumer decisions reversed.)
Less. It works for me.
A final, cautionary thought: if the ideas I wrote here were widely adopted, most economies would crash. But I don't think there's any serious risk of that.