Financial Times columnist Janan Ganesh recently took on the wellness industry for focusing too much on the small stuff.
"It takes minimal life experience to know that happiness comes from a small number of disproportionately important things. Perhaps as few as two. One is a fulfilling job. The other is a vital private life, which could mean, according to taste, devotion to one person or what George Michael hailed as 'fast love,' " writes the columnist. "No one who dislikes their work or partner will ever offset the pain by mastering sleep, fitness, nutrition, digital abstention and other lifestyle marginalia. Lots try."
The same insight essentially holds with much of personal finance. The classic example of paying too much attention to financial marginalia — at least to me — is the constant stream of articles nagging at young adults to stop ordering daily lattes. The typical exhortation asserts if you didn't buy that latte but saved the money instead, by the time you've reached retirement age you would have saved thousands of dollars, thanks to the power of compound interest.
The math is right. But the advice puts too much emphasis on a peripheral issue. Only a handful of expenses really count when it comes to the desire save more by spending money wisely. Those core expenses are shelter, transportation and postsecondary education. Spending decisions involving those three areas dwarf any savings that might come from steering clear of lattes.
Take the home. Compare the financial implications of stretching household finances to buy a bigger home to owning a smaller place. The money difference isn't simply a bigger mortgage. Other costs are higher, too, including maintaining the home and furnishing it.
You can run similar calculations buying a more expensive and cooler looking car vs. something cheaper and essentially functional for getting around. In addition to a higher price tag, expensive cars are also more costly to insure, maintain and repair.
Going to college without taking on too much debt isn't easy, but the effort is worthwhile. You'll need to make some tough choices, but your student graduating without much debt is liberating when they hit the job market and parents can put more money aside for their later years.
Spending smartly and concentrating on big expenses makes it easier to save more and borrow less over the long haul. That way, you don't have to sweat the small stuff (as much).
Chris Farrell is senior economics contributor, "Marketplace"; commentator, Minnesota Public Radio.
