One of my favorite ideas I’ve ever come across in personal finance is the “fulfillment curve,” an idea I picked up from the wonderful book Your Money or Your Life. Here’s a simple conception of what it looks like (I’ll explain the numbers below):
The idea is that once you reach a certain point, spending more money on some aspect in your life actually reduces the fulfillment you get. At the same time, if you don’t (or can’t) spend enough, you don’t feel maximally fulfilled, either. I wrote a detailed article about the fulfillment curve a while back that’s well worth reading if you’re interested.
Regardless, here’s an example of what the curve means. Think about it in terms of spending money on food. A steady diet of the absolute cheapest things at the grocery store will put you at a “2″ or a “3″ on that curve. Sure, it keeps your belly full, but it’s not an enjoyable or highly diverse diet. If you spend a little more, you can bump things up to a “4″ and have a fulfilling diet. However, if you keep spending more and keep trying to chase the “perfect” meal, you’ll never quite get there. You’ll move toward a “5″ or a “6″ and find that things are actually less fulfilling than they were before.
In other words, personal finance success comes from finding that “4″ for the things you really care about in your life.
I want you to look at this curve and think about two additional ideas.
First of all, frugality has a huge impact on this curve. It modifies this curve in three different ways.
One, on things you don’t care about, frugality encourages you to slide that curve back to a “1″ or a “2.” If something isn’t of importance to you, then you should focus on minimizing the money spent as strongly as you can. Makes sense, right?
Two, on things you do care about, frugality strongly encourages you to slide anything higher than a “4″ back to a “4.” In other words, you should spend time looking at everything you spend money on in your life and ask yourself whether or not the money you spend is actually bringing you lasting fulfillment. Are you buying things that you really enjoy? Or are you buying things out of habit or because you feel like you’re supposed to buy them? (More on that in a minute.)
Three, if you’ve found a “4,” frugality is all about lowering the cost of whatever it is that keeps you at that fulfillment peak. If spending $10 a week on something leaves you feeling really fulfilled, if you can find a way to spend only $8 on that same exact thing, then that’s frugality at work. That’s $2 a week you’re saving.
At the same time, marketing has a strong impact on the curve, too. I see the impact of marketing in two different ways, both of which directly oppose the impact of frugality.
One, marketing tries to convince you that you should care about specific things that don’t matter to you. For example, marketers might try very hard to strongly encourage you to care about sprays that make your home smell better. If you make someone identify a need in their life – something that they feel that they must have – then there’s a new fulfillment curve in their life, one that they will feel unfulfilled with until they’ve spent enough money to get it up to a “4.”
Two, marketing always tries to make higher numbers seem like a “4.” You won’t feel fulfilled unless you buy this nicer car or this nicer gadget or this nicer makeup or this nicer clothing. That’s the mission of a lot of marketing – to distort our fulfillment curve. Quite often, it barely has anything to do with a specific product – as long as people have a distorted fulfillment curve in a certain area, they’re going to overspend in that area and if they have even a slight sense of a product, they’ll probably go for it.
In other words, frugality pushes you to the left side of the picture, while marketing pushes you to the right side.
How do you find the right balance?
For me, I find it’s always better to make a mistake on the lower end of the fulfillment curve, for a couple of reasons.
One, if you shoot for a “3″ on the curve, you’re spending less money than if you were shooting for a “5.” For example, if I buy a generic version of an item, I’m probably aiming for a “2″ or a “3″ on that curve. If I buy a “quality” name brand, I’m probably shooting for a “5″ or so. I’m saving money by buying the “3″ rather than the “5.”
Two, if I’m unfulfilled by a purchase, I know I can always move up the curve later on. For example, most of the time, I’ll find that the generic is perfectly fulfilling, meaning that the item I thought was a “3″ is actually a “4.” Sometimes, though, I find that item really isn’t all that good. Next time, I can go back to the store and buy another item that might cost a little more.
At the same time, if I overshoot the peak of that curve, I spend money needlessly. I never feel great when I’m paying way more for one version of an item than another, so I like to start from the inexpensive end of the options and work up rather than buy an expensive version and just stick with it.
The advice is simple. Buy lower cost items and generics unless you have a very specific reason to upgrade, and don’t buy more of something until you’re actually out and actually have a purpose for more. Marketing will try to convince you that you need the better/more expensive version, but let your own experiences be your guide. Your wallet – and your financial future – will thank you.