In Penelope Tzougros’ book, Wealthy Choices, she asks us to consider 3 questions before making a purchase. I’ve addressed the questions What are the Benefits of Making This Purchase? And How Important is Making This Purchase? I think the final question - Is this the best use of my money? - is probably the most difficult, at least for me.

I tend to be an idea person, so my mind is constantly flooding with ideas and concepts to make more money, become more efficient, or do something better. At the same time, I’m an action-oriented gal - Marcus Buckingham calls it the “activator” strength in his Now, Discover Your Strengths paradigm - so I’m all about trying something, seeing how it works, adapting, and then trying it again. So at any given point, something can seem like the best use of my money - at least until I’ve tried it and am able to come up with a better use.

Being more conscious about financial decisions has helped curb spending a lot because I tend to be more strategic in how I implement something - and therefore I’m getting much better at choosing the appropriate course of action. But, admittedly, I still have a tendency to come up with something and want to act on it right away - and spend money accordingly to make it happen. It takes effort on my part to crunch numbers.

Still, I think this question is extremely valuable because it forces you to think about your short term and long term goals. Too often, our focus is on the short term - paying off this or buying that - rather than the long term - in 10 years, I want to be here and this is how I’m going to get there.

In The Wisdom of Crowds, James Surowiecki explains that people tend to value the present more than in the future. Economic theory would suggest that a person’s consumption would remain the same before and after retirement, but this just doesn’t play out in real life. He says

In fact, consumption drops dramatically when people retire, and senior citizens get by on considerably less than they did when they were working. Oddly, this isn’t because people don’t want to save. In fact, if you ask people what they ought to do they’ll express a preference for saving. But when it comes to actually doing it, Americans are college students (and writers) at heart: they procrastinate. In economic terms, they value the present so much more than the future that saving seems to make little sense.

The paradox is that although Americans aren’t willing to make sacrifices in the present to improve their future, they say they’re willing to make sacrifices in the future to improve their long-run prospects. In other words, although they’re not willing to save any part of their income today, they’re willing to save significant parts of their income tomorrow. The problem is that people turn out not to be that good at estimating what their preferences in the future will be. This may not be that surprising: we change, circumstances change, why should we imagine that we know what we will want. But one consequence of that is that the plans we make today in anticipation of how we will act tomorrow may not work. Specifically, if we say we will not worry about saving today because tomorrow we will finally get around to saving, it will not be surprising if when tomorrow rolls around we find ourselves still spending.

I think we all fall into the mentality of sacrificing the long term for the short term at some point in our lives, so it’s good to remind ourselves that each purchase can help us, hurt us, or remain (more or less) neutral in the long run. We need to ask ourselves - will this be worth it?