Looking Down the Ladder: A Different Perspective on Spending

Several years ago, I wrote a review of various books including Jacob Lund Fisker’s book Early Retirement Extreme and then followed it up a couple of years later. I found – and still do find – the book to be a very interesting mix of personal finance and philosophy, which together spells out a plan for low cost living with a thoughtful discussion of the ideas that underpin that plan.

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.

The Housing Spending Ladder

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.

What I’ve come to realize over the years is that neither one of those perspectives is really healthy.

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, when I look at that ladder and ask myself what I personally need, it isn’t much. I’m finding that when I consider what I actually need to live a content life, I don’t need a whole lot. This is true for a lot of people who have the capacity to live as a “digital nomad,” where they don’t need a permanent residence or a physical workplace and they don’t have dependents.

However, I do have dependents and that changes things. This paper on how housing affects the well being of children sets something of a minimum rung that I feel is necessary for me to raise my children well.

So, how does that “minimum” rung compare to where I’m at now? Frankly, we have a nicer house than what I consider necessary to meet our needs. We could definitely have a smaller home, although if it were significantly smaller, it would begin to get cramped. We could also live in a less expensive area without a significant detrimental effect (though on a national scale we do live in a pretty low cost area).

So, in terms of housing, we’re a few rungs above what i would consider the ‘minimum rung’ that I would want to have with three children under our roof.

Why does that gap exist? We purchased our home before I really started thinking about things in that light, and the cost savings of downgrading is relatively small enough compared to the time cost and additional financial cost of moving that I don’t believe it’s worth it. If we were several rungs higher from where we’re at, I would strongly consider downsizing.

Let’s look at another example.

The Transportation Spending Ladder

One might look at the money one spends on transportation through this type of ladder, where housing options are listed by monthly cost:

– A personal private jet and a chauffeured car
– First class plane tickets and a chauffeured car
– First class plane tickets and a new luxury car
– First class plane tickets and a new high end car
– Coach plane tickets and a new luxury car
– First class plane tickets and a new mid-class car
– Coach plane tickets (and we’ll assume everyone below this flies coach) and a new high end car
– A new mid class car
– A new economy car
– A late model used luxury car
– A late model used high end car
– A new motorcycle
– A late model used mid-class car
– A late model used economy car
– A heavily used luxury car
– A late model used motorcycle
– A heavily used high end car
– A heavily used mid-class car
– A heavily used economy car
– A heavily used motorcycle
– Mass transit
– A bicycle
– Your feet

Again, one might quibble with the exact ordering of rungs on this ladder, but the general idea is pretty clear.

For us, we’re currently sitting on the “heavily used mid-class car” (a decade-and-a-half old Honda Pilot approaching 200,000 miles) and “heavily used economy car” (an almost-decade-old Toyota Prius with around 160,000 miles on it) rungs. Our belief is that we’re at the rungs that meet our needs.

The thing to remember is spending ladders like this exist for almost everything we purchase. We look at spending ladders for everything from garbage bags to sports equipment, from restaurants to clothes, and so on.

How is this model useful, though?

Looking Up the Ladder

As I mentioned earlier, there are several ways to look at the ladder, and one common way is to spend most of your time looking up the ladder. You spend your time thinking about a nicer house, a nicer car, and so on. You feel envy towards those who have such things and some sense of frustration that you do not.

Channeled correctly, this perspective can be heavily motivational. If you want things, that desire can motivate you to work incredibly hard to get them.

The drawback, however, is that the higher rungs on a purchasing ladder are almost entirely external motivations, and external motivations need to be incredibly strong to push you toward sustainable long term behavior. It doesn’t take long for an external motivator to start losing power unless it is extremely disruptive and demanding, and the simple lust for a thing typically only continues to motivate if it’s paired with other motivations, often internal ones.

You don’t need a giant house. You might want one, but a big part of that motivation is to impress others.

The only time that changes is if a higher rung on a ladder represents an authentic need to be met, such as if you’re unable to provide adequate housing for you or your family. That transitions the whole thing to an internal motivation until you reach that rung.

Furthermore, there’s the issue that higher rungs on a purchasing ladder are flat-out more expensive than lower rungs. You either have to take away from other purchasing ladders and settle for lower rungs or you have to push yourself to earn more and more money to maintain your level on all of those ladders while moving up on some of them.

Looking Down the Ladder

On the flip side of all of this comes looking down the ladder, which is an entirely different set of motivations.

On one hand, a person looking down the ladder can feel a great deal of contentment at their current position. It can be a constant reminder of the blessings you have in life and how much you really do have. This perspective generally makes it easier for people to move down a few rungs, whether by choice or necessity. I consider this to be the healthiest perspective in terms of the purchasing ladder – if you must look, look down with a sense of contentment with what you have.

A look down the ladder can also be disdainful, as you evaluate situations (and people in those situations) with a negative viewpoint. Why couldn’t they climb as high as I am? Often, this viewpoint causes people to look upwards on the ladder, as they often want to climb as high as possible.

The advantage of looking down rather than up, particularly if done from a mindset of contentment rather than disdain, is that it directs your mind to choices that conserve money for other uses while also focusing on your actual needs and wants rather than aspirations and envy.

What about motivation, though? Looking up the ladder is a much more obvious source of motivation and encouragement to work hard. Doesn’t looking down encourage the opposite?

For me, looking down the ladder always comes paired with other life moves. When I move down, something else in my life is moving up, and I often look at that change in position as a net gain. We’ll get back to that in a moment.

Where Are My Needs and Wants?

A big part of this way of looking at spending is that it’s all about assessing one’s needs and one’s wants. What exactly do you need with regard to a particular item? In essence, you’re asking yourself what the bottom acceptable rung on that particular ladder is.

For example, I might look at the ladder of options for cleaning clothes and recognize that my only real need from that project is to get my clothes clean, and that my clothes are generally not filthy. Because of that, the lowest rung that actually gets my clothes clean – not the rung that includes lots of scents and a comforting name brand, but a much lower rung – is the bottom rung, and that’s simple homemade laundry soap.

However, what do I want from a laundry detergent? Convenience is definitely one piece of the equation, as is a fresh smell. If I decide that I really must have those things, then I’m climbing up the ladder, which is fine.

Whenever you climb up one ladder, though, you’re climbing down another one. Which one will it be? What are you giving up for that want?

It seems difficult to navigate, but it’s actually quite easy if you apply a couple of core principles to the whole situation.

First of all, unless you have a particularly deep feeling about a particular type of purchase, stick solely to addressing minimal needs. This is why I simply buy store brands for most things. Those items handle my needs, so why do I need to buy a name brand item?

The second principle is where things get interesting.

Applying the Ladder Everywhere

As I touched on earlier, the reality is that we are on a ton of purchasing ladders at the same time. Every single item that we buy with any kind of regularity is one where we’re trying to balance wants, needs, and price, and it’s almost always a balancing act.

What I’ve found over the years is that if I apply the first principle in earnest – sticking to just covering needs unless there’s a genuine reason to do otherwise – there are always resources available for the things that I care most about. That’s the second principle: if you stick with your needs on most things, you almost always have plenty of money available for your wants when it counts.

So, I go through the store and buy store brands. I live in this relatively modest house. I drive a fourteen year old car with almost 200,000 miles on it. I make almost all of our meals at home. None of those things really bother me at all. There’s no real “want” in my life that those choices are opposing.

However, what I do have money for is saving for an early retirement. I want a life where I can wake up in the morning with the full canvas of a day in front of me to do almost anything I want. Read a book? Sure! Go on a hike? Sure! That’s something I deeply want, so I’m pretty high up on that spending ladder, socking money away left and right for it.

I have money for a handful of hobbies I really care about. I don’t have qualms about buying myself a new board game every once in a while, as long as it’s within budgeted reason. Again, that’s a ladder where I’m pretty high up because that’s one that really means something to me.

When you focus in on just one ladder and you’re down near one of the bottom rungs, it can feel like deprivation. You look up at all the options that are pricier and (theoretically) higher in quality. You’re able to appreciate those options. And, as mentioned earlier, you begin to churn up some emotions that push you toward moving up.

When you step back, though, and look at all of the ladders in your life, you begin to realize that some of them really matter and some of them do not.

If the only ladder in my life that I focused on was dishwashing detergent, I’d probably buy an amazing premium detergent. However, it’s not a purchasing ladder I care about in any real way, so we buy a dirt-cheap dishwashing detergent that gets the job done well in our dishwasher. That way, the resources that I’m not spending on Cascade Ultimate (or whatever would represent a high rung on that ladder) can move elsewhere.

The truth is that out of 1,000 purchasing ladders in my life, I really don’t care about 990 of them, at least not nearly as much as I care about my top few. They just don’t matter that much to me.

So I’m content with a very low rung on most of those ladders. In fact, I often seek out ways to move down a rung or two if possible without sacrificing the need that’s met. That’s frugality in a nutshell. I want to be as low as possible on the spending ladders of things that are of low importance to me.

Everyone’s Ladders

The thing to remember is that everyone has these ladders in their life. We’re all choosing which ladders to climb and which ones not to climb, and none of us are making the exact same choices.

It’s easy to fall into the trap of comparing individual ladders. If I compare my housing ladder to the housing ladder of a particular friend, with no other context, I’m going to feel jealous. I have a great friend who owns a $600K house – and the house is gorgeous.

The thing is, if I step back and look at our broader ladders, I see that he’s at a different place on a lot of ladders than I am, and that on the ones that I truly care about, I’m at a different place than him. I’m where I want to be on those ladders.

So rather than feeling jealous, I simply react with happiness for my friend, as I hope he’s at a place on his ladders that he’s truly happy with. He takes great pride in his home, fixing it up constantly and posting pictures of DIY projects on social media, so I certainly believe he’s happy with his house.

The thing to remember is that the handful of ladders I care most about are not the ones you care most about. Thus, you’re probably not going to be on the same rung as me on the ones I care most about, and I’m almost assuredly not going to be on the same rung as you on the ones you care most about.

That’s completely okay. In fact, that’s a good thing.

In the end, the only ladders that should really matter to you are your own. I care about what my friends have done with their money only in the sense that they’re happy with their choices and have happy and fulfilled lives. I don’t need to have everything that they have, nor do they need to have everything that I have.

Final Thoughts

The idea of “purchasing ladders” really helps put a number of things in perspective. It reveals the value of seeing the glass half full in life rather than the glass half empty. It reveals the danger of becoming obsessed with just one ladder, because climbing one ladder means going down another that you might just care about more. It helps put jealousy of what others have in a unique perspective, too. It can even help with a whole life approach to personal finance.

I use “purchasing ladders” as a model in my mind for how we spend money, how my friends spend money, and how the levels on the various ladders are highly connected to personal happiness. For me, the route to happiness comes from being at the lowest reasonable rung on 99% of my ladders so that I can climb freely on the 1% I truly care about, and I put that in action when I act frugally. I encourage you to find a similar balance in your own life, because it puts a lot of things in perspective and makes a lot of decisions very easy.

Good luck!

Trent Hamm

Founder of The Simple Dollar

Trent Hamm founded The Simple Dollar in 2006 after developing innovative financial strategies to get out of debt. Since then, he’s written three books (published by Simon & Schuster and Financial Times Press), contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.