In our “60 Motivating Seconds” series, we’re bringing you simple tips designed to help you make progress on your money — in just a minute’s time.
This week, Matt Shapiro, CFP®, a financial planner with LearnVest Planning Services, shares a strategy for getting frivolous (and unfulfilling) impulse buys under control.
In a perfect world, you’d never feel buyer's remorse — not even about that infomercial spaghetti maker you purchased at 2 A.M.
But the world we live in is far from perfect — and you’re bound to make some less-than-fulfilling purchases every once in a while.
As a financial planner I help people minimize these unsatisfying buys — and I have found one exercise is particularly effective when it comes to determining what's really worth your money.
It’s called the “cost per happy” system.
Why It Works The beauty of the Cost Per Happy (CPH) system is that it's actually pretty intuitive. In fact, you may be employing a big-picture version already — without even knowing it.
For example, let's say your best friend is planning to visit you this weekend. Faced with the choice to spend the $100 you've budgeted for weekend fun on concert or NBA tickets, you'll naturally weigh the benefits in your head — ultimately picking the activity you think your friend will enjoy the most.
The CPH system requires a very similar thought process. The only difference is that it uses hard numbers to help ensure you're spending your everyday fun money on buys that bring you maximum happiness.
"If you're struggling to decide whether a purchase is worth shelling out for, you can simply recall the CPH of a similar past buy—and use that figure to help you make a wise decision in real time."
How to Get Started The first step is to pick a recent impulse purchase — say, a jacket you bought during a flash sale — and rate it on a scale from 1 to 10, with 1 being “I could live without it,” and 10 being “I've never been happier.”
If you’d rate it a 4 or less, rest assured that jacket wasn’t worth your money. However, if you'd assign it a 5 or higher, you've determined that purchase has some value to you — and you're ready to move on to step two.
Now take the total cost of the jacket — say, $200 — then think about how many hours of happiness it's brought you. If you've worn it to two five-hour parties, you've banked ten hours of happiness. Divide that number into the cost of the jacket, and you've got your CPH: $20.
This process gets easier the more you do it, so practice calculating your CPH for a bunch of recent, non-essential purchases. Fifty bucks for a two-hour dinner? Your CPH is $25. But $75 for a kitchen gadget you used in an hour-long cooking experiment? This time, it's a much steeper $75 — and maybe not so worth it.
You get the drill.
The ultimate goal is to eventually get so good at rating your purchases that future shopping debates are a cinch. If you're struggling to decide whether a purchase is worth shelling out for, you can simply recall the CPH of a similar past buy — and use that figure to help you make a wise decision in real time.
That, of course, should lead to fewer "What was I thinking?!" buys — and ideally leave you with more money to spend on the things you truly love.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.