Looking Up the Ladder: A Different Perspective on Spending

A few years ago, I wrote an article entitled Looking Down the Ladder: A Different Perspective on Spending. The article covered the idea of a spending ladder, and I’m going to quote the explanation of a spending ladder here:

One idea that really stuck with me, though, was his idea that one’s preferred level of spending constitutes a rung on a ladder. The idea of a “spending ladder” is easier shown by example than by explaining it, so let’s hop right to an example.

One might look at the money one spends on housing through this type of ladder, where housing options are listed by monthly cost:
– A mansion
– An above average house in an expensive neighborhood
– An average house in an expensive neighborhood
– A below average house in an expensive neighborhood
– A very high end apartment
– An above average house in an average neighborhood
– An average house in an average neighborhood
– A high end apartment
– A below average house in an average neighborhood
– An above average house in an inexpensive neighborhood
– A below average apartment
– An average house in an inexpensive neighborhood
– A below average house in an inexpensive neighborhood
– A rented trailer
– A small hardbody camper
– A popup camper
– A tent
– A car
– Couchsurfing
– Sleeping under the stars

You can add many, many more rungs to this with options like condos and townhouses, and they might vary a little depending on the area you’re in and other factors, but this should make the idea clear.

When a person looks at a ladder like this and identifies which rung they’re on, several thoughts might run through their head.

A person might look at higher rungs on that list with envy. Some may wish they had a nicer or bigger house in a nicer area and thus, when they see this list, they feel envy because of all of those options out there that they don’t have.

A person might look at lower rungs on that list with relief and, perhaps, pride. A person might feel relieved that they have the housing that they have and that they don’t have to “settle” for less housing. […]

Instead, when I look at this kind of “ladder,” I look for the lowest rung that meets my needs. Then, I ask myself why I’m not at that rung. If I am at that rung, great. If not, why not?

So, let’s look back at that list of housing options. I’d probably describe our house as a slightly below average house in an average neighborhood. There are definitely neighborhoods with smaller and older homes in our area and neighborhoods with much bigger and nicer homes.

As I noted at the end of the quote, I tend to look at the lowest rung that meets my needs and, if I’m not at that rung, I ask myself why I’m not.

So, for me personally, I would want some sort of permanent shelter over my head. I’d probably consider a car or a tent to be the lowest rung that meets my needs. This isn’t as strange as it might seem – after all, a Major League Baseball pitcher lived in his own car for years by choice. It met his needs and, for me personally, it would meet my needs.

Yet, I’m not living in a tent. There are many rungs between where I actually live and where I could theoretically do so.

Why is that gap there? If I would be okay living in a much simpler place, why do I have a pretty average house in an average neighborhood?

I find that answering that question seriously – and answering virtually the same question about any other spending ladder in my life where I’m currently sitting at a higher rung than I actually need to be – digs up some interesting and difficult things to think about in my life.

I strongly invite you to do this exercise on your own. Look at that housing ladder I shared earlier in this post. Figure out exactly where you are on it. Then, figure out which is the absolute minimum option that would meet your needs. Why are they not the same?

For myself, I can make a list of reasons that explains that gap. Some of them are sensible and justifiable, other ones really aren’t. Let’s dig through some of my reasons.

I have a wife and children and that requires more living space. I suppose it would be possible to live in a large tent, but living in a vehicle would be incredibly difficult.

I live in a climate with very cold winters and family concerns make moving unlikely. Sarah and I live in central Iowa. We are within driving distance of both of our extended families. Sarah has a steady job in this area that requires physical presence. So, for the time being, we’re staying here in central Iowa. The climate here basically requires a warm living environment, so that nudges me out of the tent range at least to a hardbody camper or trailer.

Owning a decent home is an investment, as that home is likely to appreciate over time. The options close to the bottom of the ladder are going to depreciate in value, while the home I live in is going to appreciate in value even after maintenance costs.

Those are sensible reasons. Now, for some less sensible ones.

I have a lot of stuff, way more than I actually need. Storing that stuff takes space. If I had less stuff – and the same is true for the other people in my family – then I wouldn’t have a reason to have as much space as I do. It’s not as if we have a giant home, either – it’s less than 2,000 square feet. I simply realize that I had a pretty fulfilling life back in the late ’90s when I was able to live out of my backpack and a small plastic tub for a couple of years.

I enjoy having people over to my house and have room for many people to congregate. It would be prohibitively difficult to entertain and host people in a smaller home. It sometimes stretches even our current home to host the type of events I want to host.

I take a sense of indescribable personal pride in being a homeowner. When I think about that feeling rationally, it doesn’t make a whole lot of sense, but that feeling is still there. I think that some of it comes from the sense of pride my parents had in being homeowners.

I feel safer in my home than I ever did in an apartment, so I associate “safety” with a decent sized home. The real reason for this is that we chose an area to move to that was extremely low in terms of crime rates, which we wanted so that our children could play and explore some personal freedom without a strong threat of crime. After living here for a while, it feels safe, a feeling I now value and one I associate with owning a home. Of course, there are apartments within a few blocks of us, so it’s not necessarily a rational feeling.

I want my children to have their own bedrooms. For most of the time growing up, I didn’t have my own room. I shared a room with one of my brothers throughout most of my childhood, and sometimes I slept on the living room couch. One thing I really always wanted when I was little was a room of my own, which I did finally have when I was just a few years from moving out. I’m fully aware that I’m transferring those feelings onto my kids.

Those aren’t particularly rational reasons for owning a larger home than we need. They don’t move me toward my goals in life, and any sort of careful reflection shows those thoughts to be nonsensical, yet I’m not really considering moving, either.

I can repeat this exact experiment with almost any “spending ladder” I might decide to look at. Let’s look at transportation, for example. A “spending ladder” for transportation might look something like this:

– A private jet
– A high end new car
– A mid range new car
– A high end late model used car
– An entry level new car
– A mid range late model used car
– A high end old car
– An entry level late model used car
– A mid range old car
– An entry level old car
– A mass transit pass
– A bicycle
– A pair of shoes
– Bare feet

Again, there are definitely more rungs that could be added in each of these gaps, but it gives you an idea of what we’re working with.

On this ladder, I’d probably put us currently either an entry level or a mid range late model used car. Given where we live, an entry level old car would be the absolute floor for us; to go lower than that would likely require our family to move to the nearest large city with a metro system (Des Moines, in other words).

So, why is there a gap between what we could own (an entry level old car) and what we do own (a mid range late model used car)? Again, there are a lot of reasons, some sensible and some not so sensible. Here are a few.

I want a certain level of reliability, as getting to my destination on time virtually every time is of very high importance to me. I generally don’t want to own a car from a low reliability brand if I can avoid it. Also, in general, the older a car is, the less reliable it is.

I want a certain level of safety, as keeping my family safe while riding is of very high importance to me. I generally want to feel very confident in the safety of the car I’m driving, so I tend to prefer cars with strong safety records. Again, in general, the older a car is, the less safe it is.

There are a handful of comfort features that I really, really like in a car, though most other features don’t matter to me. For example, I like a decent audio system that can be adjusted so that the volume is different on different sides of the car. I like seats that can be widely adjusted, more so than is often found in entry level cars (my wife and I have more than a foot in difference in height). Those aren’t strictly needs, but they’re important to me, and they tend to add to the cost of the car.

Significant rust on a car makes me very worried that it’s about to become unsafe or unreliable. This isn’t exactly a rational viewpoint, as visible rust usually has little to do with what’s going on under the hood or inside the frame, but it leads me to feeling that the car is unreliable and less safe.

Again, as with my reasons for the housing ladder, there are some concerns that are very reasonable and there are some that are not. If I actually dig into why I would choose something higher up the ladder than what I actually need and I start listing out the reasons, I often start coming up with things that are more about personal feelings than objective reasoning.

Digging into those feeling-oriented reasons for doing something is really worthwhile, as it can help a person to let go of some of the less objective reasons for spending money, not just on the matter at hand, but on other things, too. This thought process alone has opened me up to a desire to really learn more about the effects of rust, to consider what features I really need in a car, to take a more sober look at my possessions, to consider how much “homeowner pride” is really worth to me, and to consider how much being able to host social gatherings is really worth to me. Those are great things to think about because they can help me figure out what’s sensible in terms of my spending and what isn’t, and doing this kind of thinking regarding many of my “spending ladders” is really useful in terms of exposing my less sensible spending motivations.

Furthermore, I’ve come to realize through looking at things through the lens of a “ladder” that it is much easier for me, and for most people (I believe), to look up the ladder than down it. Whenever we go down to a lower rung of a particular spending ladder, it usually feels like a loss, even if the reasons for doing so are completely rational and sensible. For example, if I were to choose to move into a smaller home right now, it would feel like I’m somehow losing something, even though I might have every reason to do so in terms of my broader life ambitions.

I think, as a frugal person, I’ve been much more successful at quashing my internal desire to look up the ladder and consider upgrading than I’ve been at nudging myself to look down the ladder and consider downgrading. I’ve been able to recognize my own desire to look up the ladder and I’ve been able to convince myself that most upgrades aren’t particularly useful in terms of my overall life goals and that I need to make a very strong case when upgrading.

So, what grand lessons can I really learn from all of this?

When I’m making a purchase I’m unsure about, I should absolutely aim for the lowest end possible. I should look for that item used. I should try to borrow that item. I should look for the store brand version. If I have no idea what I’m buying, I should trust the “bang for the buck” recommendations from trusted sources like Consumer Reports rather than their top recommendation.

I should keep on the same path when it comes to being able to resist looking up the ladder. I already have a very strong resistance to moving up the spending ladder on virtually everything, and that has guided me very well when it comes to saving money and keeping on track with my financial goals. I need to stick with that, because it works.

If I find myself almost compulsively drawn to a higher rung on the ladder than what makes sense at first glance, I need to back off and figure out why I’m making that choice. In both of the examples above, I explained why I felt that a certain rung was my “bottom rung,” yet when it came around to the actual spending decision, I aimed for a higher rung. Why did I do that? Digging into that question is a really worthwhile endeavor if you truly want to cut back on your spending.

I really encourage you to give this idea some thought in your own life. What’s the “bottom rung” for you on those ladders above, in terms of the minimum you actually need? What rung are you actually on? Then, most important of all, why does that gap exist? Figuring that out is really worthwhile.

Good luck.

Trent Hamm

Founder & Columnist

Trent Hamm founded The Simple Dollar in 2006 and still writes a daily column on personal finance. He’s the author of three books published by Simon & Schuster and Financial Times Press, has contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and his financial advice has been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.