The Four Different Ways To Spend Money
As a Financial Samurai, I believe in fiscal responsibility. Therefore, I have long been bothered by the government’s general lack of fiscal discipline. Instead of trying to spend within the government’s means, like most of us seeking financial independence try to do, the government tends to just borrow and spend more.
To get us thinking about our future government, it’s worth watching this short clip from Professor Friedman on how to spend money.
1) You can spend your own money on yourself.
If you spend your own money on yourself, you’re very careful on what you spend it on. You make sure you get the most for your dollar.
2) You can spend your own money on someone else.
When you spend your own money on someone else, you’re careful on not spending too much. You don’t worry as much about the gifts you buy for other people as the things you buy for yourself.
3) You can spend somebody else’s money on yourself.
You’re careful to get good things for the money. But you’re not very worried about getting the best bang for your buck. You’re happier to spend more of somebody else’s money within reason.
4) You can spend somebody else’s money on somebody else.
You become a “distributor of welfare funds.” You’re interested in making your own life as good as you can. But you’re not going to be anywhere near as careful as spending this money on other people.
In an environment where we are accustomed to spending other people’s money on someone else, we end up not maximizing the value of the dollar. We also don’t end up appreciating money as much either.
Economic Waste Is A Shame
We can agree that spending somebody else’s money on somebody else usually doesn’t result in the most efficient use of funds. There’s just too much economic waste because people don’t have as much or any vested interest.
However, I do recall that when I used the company’s corporate card to entertain clients over a lavish meal or a show, I wanted to maximize the expense because my boss ultimately had to sign off on the bill. If I spent too much, my judgement would come into question. If it did, my year-end bonus would be in jeopardy.