Expenses: Value vs. Cost

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My wife and I celebrated our 10-year anniversary last year with a trip to Europe. During our trek around Paris, making sure to visit the notable landmarks while placing a greater importance on sampling the local fare and wine, each purchase prompted an immediate calculation of our seemingly weak dollar to the mighty euro. At the time, the EUR/USD exchange rate hovered around 1.40. That 40 percent surcharge of sorts took a significant bite out of our finances over the course of the 10-day trip. Due to the euro’s free fall in the final months of 2014, the exchange rate has since plummeted to 1.10. I’ve prevented myself from calculating the potential savings – thus far – had we waited 12 months to celebrate our wedding vows.

In hindsight, though, the cost of the trip has now faded to the point where I would have to look through last year’s spreadsheets to see how much money we actually spent. The memories are as sharp as ever, however. That’s the true value of money well spent. It’s difficult to buy things that result in true happiness, and so for those items that do, the exchange rate involved is meaningless.

It’s easy to rationalize grand vacations and other substantial purchases in that manner, but what about the day-to-day costs that define our balance sheets? Instead of evaluating each and every dollar spent through the same lens, develop your own personal exchange rate to maximize your buying potential. It’s easier than it may sound. Scroll through your purchases last month and see which ones actually stand out. For me, a group outing to see Mumford & Sons in concert and a date night were prominent expenditures in June. However, the value of such occasions carried far greater value than the cost involved. Those events were highlights of the month and so the price tag attached didn’t bother me when July 1 rolled around and the numbers crunching ensued. The expenses that were most frustrating as our monthly spending crept toward the budget line were the ones I didn’t even remember making. What did I buy at Target for $32.79 three weeks ago? And I have no clue what I ate at a fast food joint for $8.07, but it’s probably better that I don’t remember.

That’s why value should trump cost in your household once a firm budget is in place. We adhere to a simple budget rule: stay under the monthly limit and you can buy anything you want.

That approach wasn’t intuitive at the onset of our marriage. I can remember my wife mulling over a $75 purchase for days on end despite the fact our monthly shopping budget (all items except food) was $400. While she understood the purchase amount fell within the parameters of our budget, she feared that such a purchase would amount to additional spending instead of replacing other spending in that category. While fixed budgetary items such as mortgage payments and utility bills are relatively set, the variable categories allow for adjustment on a month-to-month basis.

My wife’s concern was that we were so set in our spending ways, even in fluid areas such as food and entertainment, that we would have trouble scaling back if a new and substantial purchase was added to the equation. I typically dismissed her trepidation by saying that we would cut back the rest of the month so that she could splurge on shoes or a night out with friends, but when I would check how much we actually spent at the end of the month, I often found that my wife was correct.

Several months of busting the budget made it clear that we were not allowing ourselves splurges without guilt because we were unable to remove random daily expenditures that carried little to no value, emotional or otherwise. By setting a specific budget amount, we had fallen into the trap of buying goods each month up to that threshold. Sometimes it made sense, such as loading up on paper towels on double coupon days, or taking advantage of seasonal clothing sales. Other times it made no sense, such as buying books or small electronics primarily because we could.

It’s a trend that occurs in other facets of our lives as well. For years I would stress about the cost of a nice meal out without giving a second thought to the $25 trips to Panera or the pizza shop up the road. At some point several years ago it occurred to me that we were directing our anxiety and accompanying resentment at the wrong purchases. We work hard to save up a little bit of money to enjoy life, so why not spend the cash on the items we really want instead of wasting it on the minutiae that acts as nothing more than filler?

That realization has allowed me to approach budgeting differently these days. Instead of lumping important purchases in with the rest, I allow those to take precedence and let the small, less relevant items fight it out amongst themselves.

After making sure your basic necessities are covered in your monthly budget, rank your planned and proposed purchases in order. Date night, that rare treat that is so critical in refueling a marriage or relationship, is near the top of our list. Midweek lunches, clothing and various forms of entertainment are further down. All have their value, but in your household, you get to decide the importance of each and their corresponding exchange rate.

photo credit: Expenses via photopin (license)

Greg

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