Cheap Like You (or How to Spend Like a Millionaire, Part Two)



I sat there with Jimmy
We sat there, we two
And he said, “How I wish
I could be cheap like you!”

So bored we went out
With no plans at all
So we left his big house
We just stopped at the mall

So all we could do was to


And from my wallet no dollars would plop
Not one little drop.*

Cheap like you. He really did say that about me. He’s half right.

In the last post, I wrote about how spending correctly can have million-dollar implications and how to do quick math on whether you should buy it or not. Today I’ll give you more tools to help you and your child make better spending decisions.

And the Cat Said to Us, “Why Do You Buy ‘Stuff’ Like That?”*

Let’s pick up from Part 1. Corvette Rhett chooses to reward himself for his hard work by buying something. We all know that urge to reward ourselves with “stuff” or nice things. Louis Vuitton or steak houses wouldn’t exist without this urge.

giphy (1).gif(Goal. Toy. Drool.)

We’ve been trained since birth to have this Pavlovian hankering for new, shiny toys when we hit a big milestone or goal. “Toy” flashes in our mind: our mouths drool. We use it to complete our goal (and happiness). Lived another year of life? Here’s some Legos. Stumble through another year of marriage? Here’s a salad bowl. It’s your Sweet 16? Here’s a Lexus.


(Actually, she’ll have the Bentley please.)

But that new, shiny toy you’ve always wanted is a poor happiness investment. Once you meet your needs, every dollar you spend gives you a declining marginal happiness return (economists use a flashy word to describe this happiness: utility. Okay, not so flashy. It’s more like chewing gum, where the first bite floods you with flavor but every bite afterward has a little less and a little less).

Not long after you get it, this toy becomes something that you don’t really use and takes up space around your house. Stuff. And it’s because of something called the 80/20 Rule.

The Sun is Not Sunny, But We Can Have Lots of Good Fun With Rule 80/20*

This is really called the “Pareto Principle,” but that’s not snazzy sounding, so we call it the 80/20 Rule. Think of it like plastic—it’s everywhere if you look hard enough.**

You spend 80% of your time in 20% of your house. You wear 20% of your clothes 80% of the time. Your child plays with 20% of his or her toys 80% of the time. This is why you’re always wondering why you even bother getting them toys if they only play with a select few.

So let’s really look into why this rule causes happiness to decline. Let’s take your house. You like your house, but you wish it were bigger. Should you make that addition you’ve been pondering? Here’s how the 80/20 Rule comes into play.

Your $550,000 house wasn’t cheap. That’s just the price you paid to get into a smallish starter home in Scarsdale, NY so you could have a shortish commute and good public schools for your 2 children. The 80/20 Rule says you probably spend 80% of your time in 20% of your house. So in a 1500 sq ft house, ⅘ of your day is spent in 300 sq ft while ⅕ is spent in the remaining 1200 sq ft. Your 2 children and spouse each spend their 80% in different variations of the 300 sq ft. For you, it might be the kitchen and living room. For your children, it might be the bedroom and living room. It’s enough to give variety of space so that you’re not always bumping into each other. Plus, you can’t spend any less to get 3 bedrooms in Scarsdale. This is the minimum pay to play. So let’s say you get the full $550,000 happiness value, or 100%.

How about that addition? That’s a choice that will cost $100,000, so says your contractor. Thus a 500 sq ft addition will cost you $200 per sq ft… but your family will likely only regularly use 100 sq ft of that (20%), getting $32,000 of value (100 sq ft x $200/sq ft x 80% + 400 sq ft x $200/sq ft x 20%). But in order to get that 100 sq ft, you must pay for the full 500sq ft. So you pay $100,000 to get $32,000 of happiness value. In this case, your dollar bought you happiness at a 100% rate up to your needs, but once you went past your needs, every dollar spent only buys you happiness at a 32% rate, losing 68% in happiness value. That’s a horrible return.

Total Sq Ft Primary Use

(20% sq ft; 80% of time spent)

Little Use

(80% sq ft; 20% of time spent)

House 1,500 300 1,200 $550,000
Addition 500 100 400 $100,000
Total 2,000 400 1,600 $650,000

(This is also why income above $75,000—the point in which your basic, travel, and savings needs are met—starts losing its power to make you happy: every dollar you make above your basic needs has reduced happiness purchasing power because they buy things that offer a declining happiness return.)

4 Good Tricks—I Will Show Them to You*

Trick 1: The Utilization Rule

Data important to improving your decision  making are called Key Performance Indicators, or KPI, and one of the most helpful KPIs is your utilization rate. (That’s a fancy term for calculating how often you use something.)

Let’s say Parsimonious Pam isn’t much for shopping. She only buys what she needs which, as far as shirts go, is one for every day of the week until she does laundry. But Pam wants quality shirts that will last since she doesn’t want to have to shop often to replace these shirts, and quality usually isn’t cheap. She pays $50 for each shirt.

Corvette Rhett thinks Parsimonious Pam is boring. He can’t be seen driving around in his Corvette with the same 7 shirts. That’s so basic, and Rhett is not a basic kind of guy. He needs sizzle, splash, and selection, so he buys enough to give him 4 options for every day of the week (4 x 7 = 28). But Rhett wants shirts that scream style, and high style isn’t usually cheap. He also pays $50 for each shirt.


(Rhett is not basic. He’s all sizzle and splash.)

Here’s what it looks like by the numbers:

Amount Days/week Cost/shirt Total Cost Utilization
Pam’s Shirts 7 7 $50 $350 100%
Rhett’s Shirts 28 7 $50 $1,400 25%
Difference 21 0 $0 $1,050 -75%

He wants 21 more shirts than Pam, so he spends $1,050 more but utilizes it 75% less. That’s a poor use of money. (Challenge: calculate in your mind the compounded effect of this decision, assuming Rhett is 22 and retires at 62. Answers at the end of the post.***)

Trick 2: Relative Value. 

Is a Corvette 2, 3, or 11 times better than a BMW 330i? It’s about twice the price ($61k vs $33k) and 3 times the monthly cash outlay ($1,200 vs $429). But as we discussed in Part 1, focus on the number below the line. In our example, Rhett’s savings were 11 times more with the BMW than with the Corvette. Is it really 11 times better than a BMW?

Trick 3: Good vs. Great.

I learned this one from my wife. Here’s an example: I looove chorizo tacos. To me, they are an 8 (out of 10) on the taste scale. It cost $6.50 for a plate of 3. So, how much do I think I should pay for those remaining 2 taste points? Maybe $5. Now how much does it actually cost for 2 more taste points? I’ve only ever tasted a 10 at one place, Per Se. I think it costs $300 per person. So for 2 extra taste points, it costs $293.50.

FullSizeRender (7).jpg


This happens almost everywhere. The difference between the cost of making dollar store shampoo and the cost of making high end salon stuff is pennies, but the difference you pay is tens of dollars. Declining happiness purchasing power means we pay a lot to go from good (even chorizo taco good!) to great.

(This also means that in order to be great at something, you just need to do a little bit more than someone who is good)

Trick 4: Disassociate accomplishments from “stuff.”  

Instead of celebrating by consuming, try celebrating by doing. Reward yourself by taking a hike or going to the beach. Or do things you’ve been putting off doing while accomplishing your goal. This is what I teach my kids.

It is Fun to Have Fun But You Have to Teach Them How*

(Recommended for Ages 5+)

My kids love “stuff.” They will always love “stuff.” (Heck, I love stuff.) Expecting them not to love it is unrealistic and draconian. My approach is to minimize their love for it.

  1. Have your kids use their own money. For the most part, I only cover my children’s basic needs: shelter, food and clothes. My children know this (note: this is most effective after they’ve earned their own money). Everything else is on their dime (they’ve made hundreds of dollars from their lemonade stand business) or unless I’m taking them out on a Daddy Daughter Date or a Daddy Son Mission.
  2. Head vs Heart. Before we go to Target or Toys “R” Us in Times Square, I prep my kids. “Your heart is going to scream that you want it. When that happens, I want you to ask your brain if that’s something you want to spend using your own money.”  For some reason, this way of thinking about buying has really stuck with them. They always tell me, “my heart really told me I wanted this toy, but my head told me I don’t really need it.”
  3. Be a better happiness investor. We don’t get them stuff for birthdays or Christmas. We give them trips/experiences. Since buying “stuff” is a poor happiness investment, we invest our dollars in things that are actually good happiness investments (though sadly, often times more expensive): which are trips and experiences. Last year as Christmas gifts, my wife took Zuzzy for a 2-day girls’ trip to NYC to see a Broadway show. When they got back, I took Zack on a 2-day trip to NYC to see a Nets vs. Cavs game. This was many times more expensive than a $10 Frozen toy, but that gewgaw will be forgotten in a week. A special 2 day trip where your child doesn’t have to share your attention (like they do the remaining 363 days) will be cherished for decades. Special trips don’t have to cost money though. A hike is free.

But I Like to Be Cheap, Oh I Like it a Lot*

I wasn’t always cheap—quite the opposite. I shopped away my free time (and money). Shopping was like caffeine to a bored soul: it gave me a temporary surge of happiness.

My senior year in college while on a retreat at Catalina Island, sensing my shopping was out of control, I committed to taking a year long fast from shopping for “stuff.”  To help make it easier, I stopped going to 3rd Street Promenade and Century City shopping centers.

When my year was up, my friend Davis and I were looking for something to do, so we went to Rodeo Drive in Beverly Hills. To my surprise, I didn’t get the recovering addict’s cold sweat or headache. Instead, shopping was like meat that’s lost its flavor.

My life hadn’t been diminished because my basics were met. I stopped at peak happiness dollars.

Yes, I am cheap. But I’m also happy!


So Jimmy and I did not know what to see
Should I tell him about the things that make people happy?

Should I tell him about it?
Now what should I do?
What would you do if
Your friend asked you?*


*With apologies to Dr. Seuss

**Plastic is found in just about everything that’s not metal, wood, rock, or animal.

***the answer is $16,800.


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  • kristinwong5 September 12, 2016 at 7:21 pm

    This was one meaty post! Lots of good and useful information here. I think one of my favorite ideas is “Instead of celebrating by consuming, try celebrating by doing.” I have a really bad habit of using consumption as a reward. While there’s nothing wrong with spending money, I like the idea of, as you put it, being a better happiness investor. Consumption usually equals short-term happiness, at least for me. Anyway, you’ve got a lot of great food for thought here!

    • justmakingcentscom September 13, 2016 at 8:24 am

      I’ve got a bad habit of that too! One thing that’s helped is that I celebrate with food and when I do so (A little embarrassing fact coming up), I do high taste/low dollars. Yep, chicken McNuggets. When each of my 3 kids were born or I closed a deal, I celebrated with 20 pieces of golden deliciousness.

  • amileinmyshoes September 13, 2016 at 4:57 am

    I agree, the ‘stuff’ gets forgotten about but experiences are what life is made of.

    • justmakingcentscom September 13, 2016 at 8:20 am

      I feel like time is such a scarce and precious gift. The challenge for me is being completely present when I’m with them. As you wrote, too often I can throw it out of sync when I look at the phone.

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    […] economy, which means it’s super important. If people spend less, the economy hurts. If everyone spent like me, our economy would be in a lot of trouble. And we’d stop having babies, which, while a relief for […]


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