Balancing Experience and Efficiency

Valuing your time or the dime.

As we navigate our personal finance journey by setting out goals, managing behavior, and determining mathematical paths, we will inevitably start to think about how these components interact. Ideally, the three will work together and we can maintain behavior that keeps us on the path and leads us to our goal. But in reality there are bound to be tension points where we need to decide which idea takes precedence over the others. For example, are we set on the destination (goals) or will similar destinations suffice? Is a particular path (math) the only one that we will consider or might we take detours if they present themselves? How flexible are we willing to be with our mode of transportation (behavior) given the different options available? 

To continue on the journey metaphor, let's say we are say we are planning a trip from Wisconsin to New England (my wife and I were fortunate to do this in 2023). There are a lot of places we could visit, many possible paths to get there, and a host of transportation options from driving to flying. Planning this journey, we begin by asking big questions like:

Our trip to New England

• What things do we want to experience on this trip? (Goals)
• How do we want to travel? (Behavior)
• What is our budget in terms of money and time? (Math)

These questions set up a framework for the trip. They set the overall expectations that we can work from. We next need to start filling in details and asking more specific things like: 

• What attractions or points of interest might we see?
• What methods of transportation would work within our timeline?
• What opportunities or restrictions might our transportation create?
• How much time or money do we want to spend traveling?
• How much time/money do we want to spend at different destinations?

As we start to sort out details, the choices become more connected and we can see how making a decision about one thing will influence our flexibility on other things. One way to look at this push and pull is as a tug between two perspectives: experience and efficiency. The experience perspective focuses on maximizing flexibility in our journey. We are still traveling to New England within the timeline, but not as worried if things change along the way. The efficiency perspective focuses on making it to our destination in the most efficient manner. As such, it is less flexible and provides fewer opportunities for changing destination, path, or transportation. 

Stepping back into personal finance, whether either of these perspectives is the most appropriate for you really depends on your current financial situation and context. For example, if you are swamped with high-interest consumer debt, choosing efficiency over experience probably makes the most sense. In such a scenario, you need to focus all your efforts on moving as quickly as possible down the path to paying off the debt. This will likely mean enacting significant changes in behavior. If, on the other hand, your are in a comfortable financial position and wanting to save for anticipated upcoming expense (e.g., wedding, trip, car), you have the flexibility to choose experience and make choices that, from a holistic viewpoint, are less efficient. 

I think there is a great discussion of this experience vs. efficiency perspective in Bill Perkin's book Die With Zero: Getting All You Can from Your Money and Your Life. I'll probably discuss this book more in another post, but his general argument is that the primary purpose of money is to create experiences. As such, an ongoing goal for everyone should be to identify what experiences we want to have within our lifetime. We can then figure out how to use our financial resources to make these experiences happen. At the extreme, the goal is to die with zero in the bank because we have efficiently spent everything.

My position is that it is good to be generally efficient with our personal finances (particularly at the beginning), but focusing too much on efficiency can be problematic. We need to let go of simplistic goals like chasing after the biggest number, the largest hoard of treasure, etc. What value does a large number in the bank serve if you're unable to experience the things it could buy? Instead we need to be nuanced and thoughtful with our goals so that we can tweak and adjust our journey along the way.

If you've not thought about experience versus efficiency, my advice is to start by making a separate tab in your personal finance spreadsheet with the title "Experiences." Identify things that you would like to do soon, in the near future, and within your lifetime. Then begin to identify the requirements of each experience in terms of money and time. As Perkin's notes, it tends to cost less to do things when you are younger. For example, you likely can take a trip to Europe at a cheaper price when you are in your 20's then when you are in your 50's. You'll also likely have fewer commitments and responsibilities in your 20's, which will give you greater freedom in time. Additionally, things experienced earlier in life with pay a greater experience dividend since you'll be able to look back on them for a longer period of time. 

Once you've started a list, the next step is to discuss and share it with your family and friends. Are there things you all want to accomplish and can do together? How can you support each other in achieving experiences? This might be through monetary support/collaboration or other forms of support like watching pets. One thing I am confident about is that sharing your list of experiences will generate meaningful conversation about goals and life as you all brainstorm the possibilities ahead.

First published August 1, 2024.