Exploring your personal finances often involves a feeling of guilt. You feel guilty for indulging in small purchases like the infamous $5 latte. The $5 latte is used as the go-to example for improving your spending habits; if you make them at home or abstain then you'll save $25 (or more) per week, the thinking goes. I can assure you the math works out, but there's a nuance that requires discussion.
Detail Complexity vs. Dynamic Complexity
In Peter Senge's book, The Fifth Discipline, there's an introduction of two concepts that help provide clarity on why the $5 latte example is lacking. As described in the book, detail complexity involves situational complexity where many variables contribute to outcomes. This, in a seemingly obvious way, applies directly to the realm of budgeting. The traditional view is that budgeting forces you to change your lifestyle drastically. All dollars are created equal, so all expenses should be equally considered.
Alternatively, Senge explains dynamic complexity as complexity deriving from patterns and the relationship between various parts of the system. How this relates to your tasty morning drink is fascinating. If we dig a little deeper into your motivation for this particular indulgence, we can see many causes that are interrelated:
Perhaps the people working at the coffee shop are friendly and make you smile
Maybe you feel the caffeine boost is needed to stay energetic during the day
Or the calm start to your day at the coffee shop sets you in a good mood
Now, what if those were all true to some degree? Does that change the way you consider the expense? The key is in understanding that each dollar you spend does not provide equal returns. Further, reducing spending in a particular area may actually cause a disproportional decrease in satisfaction. What if, after additional analysis, you found that you should actually be spending more time and money at the coffee shop?
Approaching this from a different angle, what if you replaced your morning latte habit with something worse? What if leaving 30 minutes earlier allowed you to beat rush hour traffic? Going cold turkey on the latte would then, conceivably, reduce the enjoyment of your morning. On the other hand, what if those 30 minutes were used sharing breakfast with your family? This simple decision, after additional analysis, may not be so simple after all!
Patterns of Behavior
One aspect of Plant's training is an exploration of the deeper meaning behind your patterns of behavior. Cutting your morning latte would be a terrible decision when there's major benefit in that purchase. It's worth exploring alternatives and determining if your situation improves rather than prematurely judging expenses as good or bad simply due to frequency or amount.
Want to take a deep dive into your finances and begin to figure it out? Book a training session with Plant and start your journey today!