What is the best way to spend money?

I like to look at two examples of spending philosophies that are similar in principle, but result in very different spending amounts.

At the intersection of the two, there is a core lesson that should guide you on how to best spend your money.

Mr. Money Mustache:

The Mr. Money Mustache interview on the Tim Ferriss Show is the most insightful podcast I’ve listened to on how to spend money.

Mr. Money Mustache (Pete Adeney) retired with his wife at age 30 and now lives off of $25k – $27k a year.

He lives his life on a simple principle: Optimize spending for happiness.

What this means is that he spends no more than he needs to fulfill maximal happiness in every area of his life.

For example, he rides his bicycle almost everywhere he goes.

This form of transportation happens to be much cheaper than driving a car, but that’s not why he does it.

He rarely drives a car because getting around in a bike makes him happier and healthier.

When Pete went through every single spending decision like this, he ended up optimizing his total spending for maximum happiness and it was a lot cheaper than many people would think.

Ramit Sethi:

Ramit’s spending philosophy is to spend “unapologetically” on things you love, but cut “mercilessly” on things you don’t.

This little bit of extra thoughtfulness represents the fine line between being cheap and frugal:

For example, he says that if a $5 latte from Starbucks makes your day, then you should get it as long as you have your “big wins” taken care of.

Big wins are things like having a great job and automating your savings.

His idea is that if you have these big wins in place, then spending on the things you love, regardless of how much they cost, enriches your life more than hoarding the extra money will.

Ramit has revealed that some of his biggest expenses are related to the fitness and nutrition systems he has in place (personal trainer, personal chef). He also lives in NYC, so he pays a premium for these services.

This is very different from Mr. Money Mustache, who lives in Colorado and derives most of his health and fitness benefits for free by being physically active and preparing healthy, village-style feasts for his inner circle.

The common theme between these two is the idea of spending money in a way that adds maximum value to your life.

This is the best way to spend your money.

Of course, this requires you actually know what you value and what you don’t, which is going to be different for everyone.

I’ve decided love spending money to eat at amazing restaurants but some of my friends who make more than me would never spend that much on a meal.

On the other hand, I’d probably never spend more than $100 on a pair of shoes.

There are some things I’d never even consider buying that some people probably couldn’t imagine not having in their life, like accessories to make my car louder and faster.

The things I value most are the things I spend the most on:

  • Health
  • Financial independence (retirement)
  • Life experiences with my wife (travel, dining out, etc.)
  • Our home

Your list might consist of clothes, education, experiences, travel, food, family, charity, or any combination of these.

Everyone is different, but if you spend your money in a way that adds value to your life, then you’ll be happier.

First published on Quora.

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