I know what you’re thinking: what the hell is he on about now with a title like that? All I can say is have a little faith, it may be beneficial…
In my last year of University I had to read a book by Robert Putnam called Bowling Alone. The book was largely about what he identified as the collapse of the American social community as evidenced by declining registrations in bowling leagues. I realize that sounds crazy but it was actually a fascinating book. In one chapter he describes the personality traits of an ideal capitalist and how such traits would actually work to counter this trend.
So let’s save you money and the social fabric of society shall we?
The core of this personality actually is a close match to my own - frankly I was shocked at the time but in the years since I think my modest prosperity has demonstrated some strength to the theory.
So this is how it works. You are frugal with yourself but generous with friends, family, and other loved ones. So you only expend money upon yourself when it is a need rather than a want or you are getting a great price. With regards to family, friends, and loved ones you don’t even look at the price. This saves you money and makes you fiscally responsible because you live a somewhat minimalist existence but are well liked by friends and loved ones. You take pleasure in the joy you bring others and pride in your own efficiency with regards to yourself.
This also strengthens the social fabric as we generally only get luxury items in the form of gifts. For one thing it makes gift giving easier. We all have that friend who buys whatever they want whenever they want. They make more money than us yet never seem to have any savings but have the biggest TV. I’m looking at you Jon. Compare and contrast with me a year ago - living in a tiny apartment, small TV, long wish list but happy with significant savings and I was making less than half of what he was. How is this possible? Robert Putnam knows.
But that’s not the only support for my philosophy. Take The Prisoner’s Dilemma in which two people are caught by the police and no evidence of the crime exists. They separate the prisoners and try to convince each prisoner to rat out the other. They offer amnesty to whoever rats out the other first but if they rat each other out both go to prison but for a much shorter sentence. The deal only applies to the first person to squeal.
So if you are the only rat you get off Scott free but the other guy gets a long prison term. If you both stay quite you both go to jail but not for very long. If the other person rats you out but you stay quiet you get the long sentence and your partner gets off Scott free.
So there’s an incentive to be the first rat but if you look at the greatest utility (let’s call it fewest man-hours spent in jail total) of the system it’s better for both to stay quite and serve a very short term.
So in the late 80s a group of computer programmers decided to use the prisoner’s dilemma to test algorithms. They programmed different computers to do different things in repeated cases of the dilemma and then had the computers play against each other. For example one computer would always rat right away, another might never rat, yet another might rat every other time, and so on. The object is to serve the least amount of jail time over multiple games.
They found that in cases in which very few games were played, say 1-3, the one that always ratted right away came out on top. When a mid-range number of games were played say 3-20, they found a program that just repeated whatever the other computer did on the previous move came out on top. When many games were played, around 20-60+, the computer that never ratted came out on top.
So what does all this mean? Well let’s replace the prisoner’s dilemma with your standard social interaction. You could be a dick (i.e. the rat) and try to get whatever you can out of the interaction or you can be generous (i.e. stay silent) betting on the eventual payoff of a lasting relationship. What they did in the late 80s was to prove an argument in favour of being a nice guy.
Now other conclusions can be made from this experiment such as if you are certain never to have future interactions with someone than it’s in your best interests to be a selfish prick. So one may conclude that you don’t need to be nice to some you’ll only meet once while on vacation, for example a ticket seller at an amusement park you never plan on revisiting.
Also for situations in which you will encounter someone a guaranteed limited number of times you should treat them as they treat you. Another vacation example would be the concierge at a hotel.
But for the vast majority of situations it pays off in the long run in mathematically proven ways to be a nice guy. They say nice guys finish last, which in this case is true, but they finish with the most stuff and in the best position. So getting back to my main point it pays to be generous with friends, family, and loved ones but when it comes to yourself the minimalist existence is the way to go.
I should mention that I am NOT nice to people because of these theories, these theories just show quantitative evidence that my way of behaving will be good for me and others in the long run. It’s just support for how I want to behave anyways.
So what does this all mean in the real day-to-day world? Well for example I generally only buy groceries that are on sale or at a good price unless it’s something someone else wants. For example I generally won’t pay more than $0.50 for a chocolate bar but if my partner puts it on the shopping list I’ll probably pick it up regardless of price. Would I go out and but myself a PS2? Probably not. I can’t justify that kind of expense. That said I bought one for Burton last Christmas without blinking twice - I knew it’d make him happy.
Now I’m probably painting a pretty grim picture here and it’s not like we don’t spoil ourselves from time to time. I have bought the occasional video game and treat myself to pizza whenever a new episode of 24 is on. But these are rare and carefully thought out. Even when I get something for myself I make sure I pay the lowest price (so I buy a used video game rather than new) or get a good deal (use coupons for pizza).
So let’s assume I know what I’m talking about and you want to give it a try. How would you go about doing that?
Groceries is an easy way to try it out. Go to the grocery store without a list. Only buy things that are on sale or have a really good price (for example chocolate bars for $0.50, a 12 pack of pop for $3.50 or less, a 2L bottle of pop for $0.99, etc.). Now don’t be silly and buy stuff you don’t want or won’t eat or will expire before you get to it. Maybe it isn’t something you want today but you may want it next week when it’s not on sale. That’s how I do my grocery shopping.
The next time you see a video game or clothes or electronics item you want to buy ask yourself some questions. “Is this the best price without going online?” if the answer is no, keep looking. “Is this my only chance to buy it?” if yes, then consider picking it up. “Do I really need it?” if not then ask yourself “do I really deserve it?” and even if that’s a yes ask yourself “will someone want to get this for me for my birthday/Christmas?”
How do we judge when to treat ourselves? I generally use 3 possible reasons.
1) Tradition. I always have pizza with new episodes of great television. So long as I can afford it, I do it.
2) Hard Work. If I work more than 8 hours in a day or have a rough day I might treat myself to something. For example when I bought Smash Bros it was at the end of a very long summer season of work. 6 months of hard work and all I got myself was a $60 video game. It provided endless hours of fun and I got to enjoy the pride of being wise with my money. To give you another example whenever I quit a job I buy myself some food I’ve never had before to celebrate.
3) Success. I believe that good financial planning and management is all about thresholds. Sets limits, both maximums and minimums, for your various accounts and let those thresholds dictate regular behaviour. For example let’s say you want to keep $2,000 in your bank account to avoid services fees. Let’s say rent is $500 a month and you are paid every two weeks. A good threshold would be to have at least $2,700 in your savings account after each pay day. That gives you $200 spending money ($100 a week) plus $500 for rent and $2,000 to avoid fees and for use in case of emergency. So everything above say $2,800 you can invest. If you don’t have any tuition or other sweet tax credits you might put all the overage into your RRSP until you max out your deduction limit for the year, everything after that can go into a high interest savings account. So let’s say you’ve done all that and your high interest savings account is getting rather large, say more than $2,000. Now might be a time to adjust your spending habits a bit, treat yourself a bit more. Get the brand name food instead of the no name stuff. Go shopping, drop $200 on some nice new Rockport shoes. But when you notice the funds starting to drop below your thresholds it’s time to reign yourself in.
Now all of this does not apply while on vacation. Vacation is the one time it’s acceptable to be completely irresponsible with your money (within reason of course). Vacation PLANNING is a good time to be frugal but while actually ON vacation go nuts - or at least nuts by your new minimalist standards.
Now I’m not saying I’m right and telling you good folks what to do, I just hope to give y’all something to think about.