I like the idea of a monthly “luxury budget”, because then you only need to convince the person once; then they can keep experimenting with different things, keeping the luxury budget size the same. (Assuming that if something proves super useful, it moves to the normal budget.) This could be further improved by adding a constraint that each month the luxury budget needs to be spent on a different type of expense (food, music, travel, books, toys...). Make the person read The Luck Factor to motivate experimenting.
I suspect that a substantial proportion of the population isn’t making good use of debt to handle the stresses of pursuing a more lucrative job.
It may be simultaneously true that many people underestimate how better their life could be if they took some debt and bought things that improve their life and productivity… and that many other people underestimate how better their life could be if they had more financial slack and greater resilience against occassional clusters of bad luck.
A problem with spending the right amount of money is to determine how much exactly the right amount is. For example, living paycheck to paycheck is dangerous—if you get fired from your job and your car breaks at the same time, you could be in a big trouble; while someone who has 3 months worth of salary saved would just shrug, find a new job, and use a cab in the meanwhile. On the other hand, another person living paycheck to paycheck, who didn’t get fired and whose car didn’t break at the inconvenient moment, might insist that it is perfectly ok.
So when people tell you what worked for them best, they may be survivor bias involved. Statistically, the very best outcomes will not happen to people who used the best financial strategy (with the best expected outcome), but who took risk and got lucky. Such as those who took a lot of debt, started a company, and succeeded.
I like the idea of a monthly “luxury budget”, because then you only need to convince the person once; then they can keep experimenting with different things, keeping the luxury budget size the same. (Assuming that if something proves super useful, it moves to the normal budget.) This could be further improved by adding a constraint that each month the luxury budget needs to be spent on a different type of expense (food, music, travel, books, toys...). Make the person read The Luck Factor to motivate experimenting.
It may be simultaneously true that many people underestimate how better their life could be if they took some debt and bought things that improve their life and productivity… and that many other people underestimate how better their life could be if they had more financial slack and greater resilience against occassional clusters of bad luck.
A problem with spending the right amount of money is to determine how much exactly the right amount is. For example, living paycheck to paycheck is dangerous—if you get fired from your job and your car breaks at the same time, you could be in a big trouble; while someone who has 3 months worth of salary saved would just shrug, find a new job, and use a cab in the meanwhile. On the other hand, another person living paycheck to paycheck, who didn’t get fired and whose car didn’t break at the inconvenient moment, might insist that it is perfectly ok.
So when people tell you what worked for them best, they may be survivor bias involved. Statistically, the very best outcomes will not happen to people who used the best financial strategy (with the best expected outcome), but who took risk and got lucky. Such as those who took a lot of debt, started a company, and succeeded.