Too many people see spending as somehow disconnected from the rest of our value system and just something we have to do. In my humble opinion, those people are unfortunately very mistaken.
What we value and prioritize shows up on our bank statements, whether by choice of by just letting it happen.
Consider the case of a middle-class manager whose bank statements show frequent visits to the McDonald’s near his home. Maybe he values his time and convenience more than the harmful effects of the fast-food diet. Maybe the low-cost menu options are appealing to him on a financial level. Or maybe he has a wife at home who just really likes McDonald’s fries and asks for them every night.
What about the father who spends $100 a month on groceries, or who sells his car, in order to save some extra cash and take his only son to Disney World?
In the end, the only people who really know the truth are the spenders themselves– they alone need to have the self-awareness to understand their selection of priorities. The rest of us can and will make assumptions, and we have to understand and live with the fact that people will make judgments about us based on our spending habits.
If you understand how priorities become evident in our spending, then high-impact spending should not be a leap. I think of it as a “sister” concept. How do I define high-impact spending?
High-Impact Spending: Using our finite financial resources in a manner that brings us the maximum amount of long-term utility and/or happiness, and reinforces our ultimate financial goals, principles, values, and mission.
Consider that definition for a minute, because I chose the words carefully:
- Finite financial resources accepts the fact that the majority of us have a limited income and must make choices about our spending.
- Maximum amount because anything else is not the best use of our money.
- Long-term because too many times, we spend for short-term pleasure and quick fixes, without considering the impact on our future.
- Utility and happiness, because things we purchase must either be useful to us in some significant way, or contribute to our overall enjoyment of life.
- And finally, reinforces our ultimate financial goals…, because we have to tie back everything we do with our money to the goals we’ve set out for ourselves to begin with.
It’s not necessarily a big-picture approach–like allocating overall budget percentages, or thinking about the purchase of your home in five years. We can do a fairly good job at that when we’re planning and mapping our financial life, although the same principles still apply.
This is down-and-dirty trench work, a micro approach–it’s what happens during our day-to-day life, and ultimately determines how most of our spending dollars are allocated.
In many ways, high impact spending is the core principle of frugality–it pursues eliminating waste, careful management and use of resources, conservation, and a value focus.
How do you implement high-impact spending on a daily basis? I have a few ideas that can get you started. The idea is to control point-of-sale psychology, counteract typical sales strategies, and translate a long-term, large-scale focus on priorities into the minute details of life.
For example:
- Take a shopping Time-Out: Before heading to the checkout register at the grocery store (or the clothing store, or the toy store, etc.), do a quick time out with yourself (or with your shopping buddy). What things in your shopping cart represent the lowest value for you; the lowest positive impact? Leave them on the shelf.
- Understand where you waste money. If you’ve set up a tracking system for your money, a good insight would be discovering where some of the fluff lies. Do you buy (the now proverbial) Starbucks coffee every morning? How about things that are well-hidden, like a tub of ice cream every time you go to the grocery store? (You’ll have to scour the receipts for this tidbit). Can you learn to live without them if it means more money (and better health)?
- Understand the alternatives. Whenever we choose to purchase something, we’re inherently choosing not to purchase something else–that’s called opportunity cost, and it happens to everyone who deals with a finite income (99% of us). That’s why, when the manager mentioned earlier chooses to spend his money at McDonald’s, he might really be funneling money away from his daughter’s college education, a higher priority in his mind.
- Use useful reminders. There are countless strategies for motivating yourself to spend better–from post-its in your wallet that remind you of why you’re doing something (saving, paying down debt, being more frugal) to graphic motivators plastered on your office wall. Whatever you can use to keep yourself constantly informed of your ultimate goals, do it!
The ultimate goal is to always align spending with priorities. How you define high-impact spending is very personal and should be tied in some way to what you value in life. It might not be how I’ve defined it above. Or that framework may be generic enough for you to build on…
I’m curious to see your input:
- How would you define what high-impact spending is?
- What are some of your strategies for spending with an impact?
Photo by Kakashi
Fiscal Fizzle 
I think your definition of high-impact spending is a good one. It would be interesting to know how many people look at their spending and decide that it doesn’t really fit their value system.
I use the budgeting process to ensure that our spending is high impact. I don’t want to put any money where I don’t want it to be, so I revisit the budget at least quarterly or whenever something changes in our financial life. Our spending is probably never perfectly optimized, but at least it’s as close as I can humanly get it.
.-= 2 Cents´s last post: How to Make a Budget: Your One-Stop Shop =-.
That’s an awesome suggestion, and it’s probably the easiest approach for “mid-level” prioritizing (high-level being looking at long-term goals and low-level being point-of-sale decisions).
I think a balance of a lot of different strategies that address various components of your financial life is the best way to go…
I like the concept of High Impact Spending. It’s something my wife and I have considered carefully over the last year working our way out of debt. I have thought of it more as an opportunity cost. By spending this money what opportunities am I choosing to forgo? Getting out of debt quicker? Retiring early? Giving my kids a college education? Some consideration with every decision is a worthwhile exercise. My spending patterns to some extent define what it is I value, and I don’t want that to be meaningless trips to Target or another mediocre meal dining out. Once again Woj, nice post.
.-= Paul @ FiscalGeek´s last post: The Career Diaries: Concierge, Front Desk, Doorman, Greeter =-.
Thanks! I tend to think of purchases in terms of opportunity cost too, and we’ve gotten really good at making sure we consider this with every purchase.
I use a similar concept– “values-based spending.” But I like the usage of “impact” in your model. For the do-gooders among us, it’s a great word to make us stop and think before spending–what impact does this have on the environment, workers’ rights and my financial health?
.-= ConsciouslyFrugal´s last post: Food, Inc. =-.
Very true–sometimes, it’s “low-impact” we’re after. 🙂
I think this is the key to long-term frugality. You have to pick and choose your battles. My husband and I have chronic health problems, so we’ll always have to order in a little more than we’d like. But it’s a sanity saver.
We also made the decision (painful, for me) to forgo about $250 of extra debt payments to invest in a heavy bag, stand and gloves. This gives my husband a way to vent frustration and anxiety. He’s been teaching me some moves too. Most importantly, it was something he had been asking for for three years. Since we won’t be completely out of debt for at least another year and a half, I realized I shouldn’t make his priorities always wait on mine.
Similarly, rather than use our rewards program points for day-to-day purchases, we’re saving them up for an iPod Touch for my husband. His ADD makes it hard to stay organized and focused. This will act as a PDA to help keep him on target. He can make to-do lists, track expenses and schedule out his whole day/set alarms for reminders. That’s something I’d be willing to spend money on, if we had to. Luckily, we don’t.
We all tend to say that we have different priorities. But it’s not just priorities. It’s making our money work for us. Thanks for the reminder!
.-= Abigail´s last post: Should you correct others’ mistakes? =-.
Thanks for the great examples from your personal life! They really bring this concept alive.
You have put into words what my actions have been these past six months!! Thank you! And I love your Time out before check-out, I do that every time I grocery shop, esp when I have my 4 little helpers with me:) The check-out peeps hate me I know because I’m always returning things, but I usually save . . . lots!