The Levels of Thinking About Money (and Life)

making it all workOver the past few years, few books have impacted my thinking quite like David Allen’s Making It All Work.

The idea behind Making It All Work is that if you want to live a better life, you’ve got to really understand what your goals are and what you’re working for, both in the short term and in the long term. A big part of that understanding comes from evaluating all of the things you regularly do through a number of perspectives, ranging from the immediate matter you’re handling right at this moment up through the thing you want to accomplish over the next year and the values you have for your life as a whole. The time you spend really digging into these issues is valuable, because it will always point you towards better ways of using your time and your energy.

If you want to know more about the book, you might want to read through my detailed “book club” of Making It All Work.

So, what relevance does this have to your money?

One of the most powerful lessons I’ve learned about my financial situation during my financial turnaround is that every decision you make has long-term consequences, even if they seem like simple decisions.

What I eventually started doing is emulating David Allen’s time management perspective with my own financial decisions. How do the choices I’m making right at this moment affect my long-term goals? Surprisingly, they often do. The same is true for the reverse – my long-term goals can and should dictate what I do in the moment, at least most of the time.

This Moment
Let’s say it’s a beautiful morning in 2004 and I’m on my way to work. I spot this great drive-thru coffee shop that a friend told me about, so I turn in there, like I’ve done the past few mornings. I’m waiting in line, about to place an order.

Now, I’m about to spend $7 on my large coffee and a muffin, much as I’ve ordered the past few mornings. That’s $7 I could have spent on something else, but I enjoy that large coffee and muffin and I haven’t had breakfast. I could possibly go somewhere else for breakfast for a few dollars cheaper, I suppose, but that coffee and muffin seem awfully tempting.

In the moment, a delicious little breakfast calls out to me.

This Pay Period
The thing is, going to this coffee drive-thru is starting to become a routine. I will have gone three times this week, and I’ll be craving that coffee and muffin on Monday morning, too. Next week will see at least three visits to this little shop.

That’s $42 out of my pocket.

Now, you might argue that my visit to the shop in this moment is a one-off decision and that I could choose to do something else any time I want. The problem with that is that in many aspects of life, even the most spontaneous people are creatures of habit. Even the most subtle of routines become normal, and we begin to follow those routines without any active thought.

Breaking those routines takes a lot of psychological effort. Eventually, I’m not going to want to be spending $42 every paycheck on coffee and muffins.

This Billing Cycle
Over the course of a month, the expense of this routine goes up to $84.

Is there another option for this? If I choose to go to another coffee shop, I can get the coffee and a muffin for $5. That gives me a monthly bill of $60 for breakfast.

Perhaps I could just prepare my coffee at home for a pittance and pick up a box of muffins at the store? My price then would be somewhere around $20 or $30 per month.

This Year
Am I becoming a caffeine addict? I’m spending this money on something to pick me up in the morning, a substance that happens to be addictive and can make for some painful withdrawal. I can have a pretty vicious morning caffeine addiction rolling in a year.

Maybe I could find something else to wake me up in the morning, like a colder shower.

This Decade
A muffin and a cup of coffee (likely loaded with cream and sugar and syrup), three times a week for ten years, is going to have a rather negative effect on my health. If I let this routine go for very long, it will just become the morning norm, and before I know it, I’ll start slowly looking like that guy at the office who is carrying a bunch of extra weight and seems to be out sick all the time. When he’s there, he always has a go-cup of coffee and a doughnut on his desk.

Is that really where I want to be in a decade? Maybe I could make a better health decision.

This Life
If I buy a $7 coffee and muffin three times a week for the next thirty years of my career, I will have spent $31,500 on just that morning routine.

I need to have breakfast, don’t get me wrong, but if I can adopt a lower-cost routine right now, I’ll save myself enough money to buy a new car over the course of my career.

Maybe the right choice is to just drive away.

Your Story
Your story in such a situation is bound to be different than my own. You’re going to think of different things at each of these levels and you’re going to put a different emphasis and value on each of those levels.

The key is to get into the habit of thinking about your choices on as many levels as possible. Sometimes, you’ll have a brief moment where you can think about those choices as you’re about to make a decision. At other times, the decision is a very quick one, and it pays to have considered such decisions beforehand.

For me, one element I always think about is whether something is a one-time thing or if I’m starting to establish a routine. If that routine has an expense involved, I think very carefully before repeating it with any sort of regularity, because I know from experience that it’s incredibly easy to establish a new habit. Keeping that in mind doesn’t keep me from enjoying splurges, but it does make me very wary of turning those splurges into routines.

I’ve come to use this type of “multi-level” thinking with most aspects of my life. It’s led me towards spending more time with my children and my wife and focusing more on opportunities to enjoy my hobbies in a social setting rather than by myself. It’s convinced me many times to spend less money or seek out better ways to spend it. In all, it’s led me to what I consider to be a much better life, financially and otherwise.

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.