#57: Idiot Money Maths #1: How much does it cost to keep you happy?
18th October, 2021
Welcome to the Idiot Money newsletter. This week, becoming wiser with money by understanding the actually important numbers in personal finance. Starting with how much it costs to keep you happy, including:
  • how typical budgeting approaches are all backward;
  • freeing yourself from a common freedom-hunting trap; and
  • the change in my thinking that made going self-employed less scary.
When it comes to using money in a meaningful way, the importance of the numbers, from using price tags as a measure of value, to fretting about growth forecasts, is grossly overblown.
We tend towards tunnel vision on the most misleading numbers (such as an investment-growth forecast, or a retirement ‘number’) while remaining ignorant of the insightful ones (such as the role of the unequivocal accounting record of our life choices in living an examined, wiser, life).
Some numbers, however, are actually helpful. This is the first in a new occasional series highlighting the most important numbers for you to know.
Knowing how much it costs to keep you flowing and flourishing – built up from an examination of what you care about, rather than blindly implied by your existing expenditure – is the starting point of real financial freedom and wiser, higher-conscious living.
Financial freedom starts with knowing the approximate minimum cost of what it takes to make your life Good.
This isn’t the minimum cost to survive on nothing but rice and hope in a squalid shoebox shared with sixty stinking squatters. Life without hobbies and friends and helping others and learning and growing and reflective space and the occasional haircut may be existence, but it isn’t life.
This is the cost of living up to the point of obviously diminishing marginal returns on each extra sliver of spending. It therefore doesn’t include any of the crap that doesn’t really add much, if anything, to your ability to live well.
This is entirely subjective. Maybe for you life without a string of polo ponies or the hundredth handbag would be markedly worse. This would be unfortunate of course, but not insurmountably so, for example if you work for a hedge fund and are unburdened by ethical concerns. If that’s the case, add those ponies and purses to your list.
This has nothing to do with frugality and frivolity. As I wrote here:
Frugality for the sake of it misses the point. While it may rid someone of the false belief that quality of life equals access to comfort, it is still defined by equating cost of living with standard of living. It just reverses it. It turns it into higher savings rate equals higher standard of living. The chance of wasting money resources is diminished, but the chance of wasting time and energy resources isn’t. This is much safer than the extravagant alternative, but it’s still focused on a numbers scorecard, and is therefore still doomed to fail (in the sense of cultivating a Good Life). Dropping the attachment to the numbers scorecard opens us to the opportunity to use a more meaningful one. For example (to borrow from Bruce Lee) to ‘seek elegance rather than luxury, and refinement rather than fashion’.

Why is this important?

Most budgeting calculators are good at counting, but crap at categorising.
And, more devilishly, typical budgeting approaches, while they may work at helping rein in the more reckless retail-therapy patients in the way a food diary curbs the worst epicurean excesses, they cast a veil of action over a void of actualisation: they con us into thinking we’ve dealt with a problem, when we’ve done nothing of the sort.
The counting is necessary, but insufficient. The ultimate point isn’t to look at your numbers, but to see your narrative. How do your decisions express and shape who you are becoming?
2. Because typical budgeting approaches have the whole thing backwards
They analyse existing expenditure, and help us ‘optimise’ all the dumb shit we’re already doing, rather than building up from the bottom.
Budgeting should be the best tool we have to live more meaningfully, but blindly logging existing expenditure is the opposite of examining a life. It checks everything against a pointless ‘can I afford this?’ measure rather than asking: ‘what makes life cool?’ and then checking how much that costs.
It’s a common error in all expenditure; we read the wine list the wrong way around: we start from what we can afford, and then see what we can buy for that amount, rather than starting from what we want, and then seeing if we can afford it.
Given how much of so many people’s expenditure is driven not by their wants, but by their immediate means, knowing how much it costs to live well is a vastly superior part of this calculation than simply knowing how much you tend to spend.
3. Because getting it right really ramps up your financial freedom
Firstly, you’ll probably be surprised at how little it costs to live well when you sidestep the pernicious belief that living well is some strange exception to the rule that it’s smarter to get the same output for a smaller input.
Secondly, knowing how much you really need to earn each year to live well frees you from the trap of believing that there’s an increasingly narrow list of options for what you can realistically do to earn that money in the first place, including how long you can comfortably take off from earning anything at all. Given how long we spend doing the earning, and how much it determines our mental and physical health outside of the hours sold to it, this is pretty damn important.
4. Because it makes spending choices above the minimum more conscious, and therefore more likely to make your life better
If your starting point for spending is ‘do I crave this, and can I afford it?’ rather than ‘do I want this – do I have good reason to expect this to make my life better, and will I remember to check that it has so I can refine the machinery for when it’s making similar decisions next time?’ then you’re leaving the quality of your life more up to luck than you probably want to.
If, however, you’ve taken the time to work out your baseline of effective expenditure then you’re likely to be automatically more conscious of everything you’re adding on top of that. Again, this isn’t about being so tight you open your wallet only with a crowbar: it’s simply caring enough about your life to try to make it better by seeing more clearly what’s likely to do so.

Can you give me an example?

I first worked this out for myself when I was thinking of going self-employed.
I’d tracked my expenditure in some form ever since I moved out. First, this was driven by necessity – I needed to ensure I wasn’t spending more than I was earning, and as barely more than an intern in a think-tank, what I was earning didn’t stretch terribly far.
Because it was so helpful, the tracking stuck around, continuing to evolve to meet both changing financial circumstances, and me getting smarter at managing them (through both clearer thinking and madder Excel skillz).
More by luck than judgment – and after editing out of my life the unhelpful (and rather wanky) story of ‘expensive tastes’ – it transpired that the habits and hobbies that most reliably triggered a transcendent sense of flow didn’t cost a fortune.
The better I got at finding efficient, effective, means of managing the inputs in my resources-to-Good-Life equation, the more options for good living presented themselves. Eventually, this provided enough freedom to overcome the terror of giving up the monthly paycheque; I came to see that in a pinch it wouldn’t really matter what I did during the middle part of the day to fund the big bookends of fun that I planned to put in place around it – something that would’ve still looked impossible had I stayed trapped in calculating the cost of Good living the old-fashioned way.
By the time I gave up the regular salary, I was already either saving or donating 50-60% of it, so becoming a funemployed bum didn’t lead to too many changes in my spending, outside of things specifically related to having a proper job. But it changed the way I related to all my spending.
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