8/9/23

When it comes to money, I evaluate personal purchases on the basis of their “Happiness ROI.”

In finance speak, “ROI” means “return on investment.” In this case, the return is my happiness, while the investment is the cost to purchase. Money is the primary cost driver, but I find it useful to broaden the definition to be money + time + brain damage (or any other perceived “cost”).

PUF

Before implementing the Happiness ROI formula, I used to follow what I’ll refer to as the “Productive Utility Framework” (PUF) for purchases.

I wanted to be a productivity machine: working hard now, while deferring enjoyment to some future state when the work was done and I could finally relax & enjoy. So, when it came to money, the PUF guided me to spending on what was necessary to drive productivity, then saving the rest.

Thus, rent, even in Manhattan, was easy to justify. I needed a place to live in order to work. I might even cough up extra cash for an apartment with a shorter commute because that helped me maximize my productive hours.

Paying up for healthy food was also a quick “yes” because food = fuel = energy = productivity.

Vacation expenditures were rationalized to the extent that they provided an adequate reset for me to return to work re-energized. Then, I’d be even more productive than before.

I was solving for “maximizing my productive potential,” so the PUF became an enabler of that aim.

Big Boy Toy

However, the PUF has its limits. Case in point: after surfing for 3 months on a Wavestorm (the obligatory starter-board for all beginners), I decided it was time to level up to a hard-top board.

At the time, I was waffling on what my budget should be. My PUF would suggest that I get the lowest cost board that’s still rideable (since exercise increases productivity).

So, as a bargain-hunting optimizer, I scoured Craigslist for used boards that might do the trick. As I was scrolling through endless pages of just-taking-up-space-in-the-garage boards, I stumbled upon a guy selling a brand new Paragon surfboard that was exactly the size & style that I dreamed of. A 7’8” Paragon mini log. Single fin. Teal blue. This was the one!

But it was $500...

How could I justify spending $500 on a self-indulgent, unnecessary purchase? It had very limited practical value. It wasn’t food or rent. It was just a big boy toy!

I was tortured by the decision for weeks. I slept on it. I meditated on it. I phoned a friend. I asked an expert. I consulted every stranger in my path, as I pleaded, "just tell me what I should do!"

Eventually... I bought the board.

I disregarded the PUF and silenced the vehement protests from my Saver Self. And I'm so glad I did. Looking back, it was one of the best purchases I’ve made in my life.

Downstream Happiness

So how did I justify this purchase? By introducing the Happiness ROI formula. I realized that optimizing for productivity in perpetuity would mean that I’d never actually enjoy the fruits of my labor in the ways that I wanted to. So, I created a formula for personal spending on current or future happiness. And this purchase brought me happiness on multiple dimensions.

Buying the board made me feel committed to the sport. I was voting in favor of a “surfer” identity with my hard-earned $$$. This purchase encouraged me to lean in to the habit of surfing each week.

Surfing served to ground me in the morning. Floating in the water evoked a feeling of zen. Dropping into a wave dropped me into a state of flow. I also received a daily dose of humility as I got absolutely tossed by waves. The ocean became my dojo for serenity and personal growth.

The sport also supplied the setting for connection with close friends. Whether it was weekday outings with roommates, Chris & Brace, weekend excursions with compadres, Connor & Joey, or destination surf trips with lifelong friends, Josh & Nick, the activity was an excuse to gather, be present, and chat.

To be clear, the physical piece of carefully-crafted plastic brought me zero happiness. Maybe a temporary thrill the day that I bought it, but that faded by nighttime.

That said, the purchase of the surfboard became a conduit to downstream happiness. It enabled experiences, connection, and growth. It was a $500 upfront investment followed by countless saltwater smiles.

What's NOT worth it?

It's crazy to me that the world will never stop me from spending my money. In fact, it aggressively encourages me to do so. The entire advertising industry is built on this practice of showing me what I should want. Then, giving me the 1-click option to act on my impulse.

My family and friends might also weigh in on how I ought to allocate my funds.
“There's a new restaurant I want to try next week. Let's go together.”
“You should invest in real estate.”
“Trust me, it'll be worth it.”

The only safeguard against these impulses and influences is my discretion in exercising my own choice. I have to decide "what's worth it?" for me. And I also have to decide what's not.

I’m grateful that I had the means to spend $500 on a material item that didn’t provide any “practical value.” However, I don't feel guilty about the purchase because I know all of the other times that I passed up an opportunity to spend $500 on something that would’ve made me only a lil bit happy.

I could've spent $500 on new clothes…
But I don’t get that much joy from new clothes (and I'd just finished cleaning out my closet)

I could've spent $500 on a weekend trip…
But I didn't have a desire to go anywhere that was a $500 flight away

I could've spent $500 on a luxurious gym membership…
But my preference was (and is) to exercise outside

So, I pass on these opportunities, while saving up for the new surfboard that promises expected future enjoyment in excess of the $500 paid.

[Disclaimer: current desires subject to change]

I’ve come to realize that no financial decision is “right” or “wrong.” We all have our own optimization formulas running in our heads. With this current one, I'm solving for happiness. You have every right to solve for something else.

Also, we can never know how our investments will actually turn out in the future. I could’ve purchased the surfboard then gotten injured on my first ride. Then, it'd be tempting to consider it a horrible investment, but that would be revisionist history.

Therefore, when confronted with these investment decisions, all I expect of myself is to be utterly honest with myself.

Being clear on what doesn’t bring me happiness helps me avoid the superfluous purchases, the ones that society tells me to buy, but don’t actually contribute meaningful value to my life. By avoiding this excess, I create a surplus for the good stuff.

Comfort, Convenience, & Peace of Mind

The Happiness ROI formula and PUF often overlap when considering that happiness isn’t just the result of surfboards and shopping sprees. Happiness can also come in the form of comfort, convenience, or peace of mind.

If paying rent is the biggest expense I incur each month, then does my apartment or mortgage bring me happiness commensurate to what I’m paying?
Does the location fit my lifestyle?
Do I feel relaxed in the space?
Or do I not care because I spend no time there?

Transportation is another consistent cash outlay. What am I solving for when buying a car: stability or style?
Do I order an Uber or take the subway? What’s the convenience gained versus money lost? (If I have the time, then maybe I’ll walk. It’s free after all! The only cost is steps. And I’m always looking to acquire more of those.)

When it comes to food, again, I ask myself, “what am I solving for?”
Is it a dining experience for a special occasion or fuel to keep me going? If the former, then the $50 steak might make sense. If the latter, then the $5 cottage cheese + flax oil will do the trick (it sounds weird but trust me).
When I'm short on free time, then I might fork out the convenience premium for a Sweetgreen salad to avoid the time cost of cooking. This makes me more productive, while simultaneously making me happy.

One might say, “I’ve got bills to pay. How does happiness factor into that?”
Well, of course, I’d pay those first. I wouldn't buy a surfboard before covering my utilities. Otherwise the happiness I felt while surfing would probably be muted by the inconvenience of returning to a home without hot water. (Although I guess the ocean could serve as my “shower"...)

I wouldn’t even take on the stress of living in debt to buy the surfboard. That peace-of-mind tradeoff isn’t worth it to me. I enjoy greater happiness knowing that I have an emergency fund than I do in spending on fun in the sun.

My Personal Code (and a cheat code)

So, aside from a one-time surfboard purchase, what normally clears the bar for me? What do I often deem “worth it”?

I don’t have any strict rules, but here are 3 categories that get regular approval from the Happiness ROI formula.

Health:
Energy is a scarce resource. I enjoy being high energy. However, I can't purchase energy whenever I want it (at least in a sustainable way - yes, I see you caffeine). So the closest I’ve come to buying sustainable energy is investing in healthy foods and anything that enables exercise.

Health enables all sorts of activities that give me downstream happiness. So, food and fitness are almost always "worth it."  

Relationships:
Quality time is my love language. Spending time with family or seeing friends is worth every penny. Whether that means walking down the block or flying across the country, I save up so I can enjoy time in-person with the people I care about.

Another example of knowing where the happiness comes from for me: once I’m together with loved ones, I don’t mind whether we go to a fancy dinner or on a walk. I’m solving for meaningful connection, so the forum and the "what we do" is less important to me.

Giving:
Giving to others (when I’m inspired to do so) is a cheat code. It’s a win-win. I get an injection of happiness far in excess of the dollars I spend, while the recipient gets what's given.

The empowering thing about the Happiness ROI formula is that it requires no logical or external-facing justifications. Happiness is inherently subjective, so I’m the only one who can act as Judge. All that’s required is that I’m honest with myself.

I know this for certain: holding a Ben Franklin in my hand doesn’t bring me any inherent joy. I've got to invest it to experience the happiness that it promises.

The Happiness ROI formula helps guide this spending in a way that truly brings me happiness. And when I stick to this approach, then I always seem to have enough.