One of the good points that Laura Vanderkam makes in her book, All the Money in the World, is that if you don’t buy the big ticket item, if you spend less on your wedding, take the cheaper vacation, buy the less expensive house, hold on to your car a few more years etc., then that money can easily buy a large number of lattes, weekly housecleaning, and so on.
Earlier personal finance books, such as those by David Bach, mention the other trade-off. By not indulging in those lattes, you can get that fancy vacation, the bigger house, the wedding of your dreams, and so on. (Of course, he also makes the point that if you’re not saving for retirement, the latte should probably go until you’re making ends meet and providing yourself a safety cushion).
Elizabeth Warren with her balanced money formula combines these two views, by saying that really no more than 50% should be going to the mandatory items like your housing, and something like 30% can go to either lattes or vacations (or both)– your choice. 
What view is right? Well, it all goes to diminishing marginal utility. At some point you have had enough lattes that another one isn’t going to make you marginally more happy than saving the equivalent amount for a big ticket item. At some point with housing, your house is nice enough that rather than paying for more housing you should allow yourself little treats.
The problem, Vanderkam notes, is that people tend to misjudge the happiness they get from small daily treats compared to larger ticket items. Most people would be a little happier indulging a small amount regularly compared to having the large annual vacation. Although, with anticipatory happiness while saving for the big ticket items, those happiness numbers may be more equal than some happiness studies claim.
So should you get rid of that latte factor in order to buy the house or the vacation? Or should you buy a smaller house and scrimp on vacations so you can have a cleaning lady or Starbucks without guilt? Only you know the shape of your utility function and where it hits your budget constraint, and only you can make that decision.
Are more a saving up for big purchases kind of person or a sweat the big stuff so you don’t have to sweat the small stuff kind of person? Or has your budget constraint shifted so you can have both?
Grumpy Rumblings (of the formerly untenured) 
March 11, 2013 at 4:29 am
Ooh, interesting. I definitely am all about the big ticket stuff. T likes little daily luxuries. That’s generally how it breaks down.
March 11, 2013 at 4:57 am
Historically, I have been the one who cuts big ticket items. Although I have a company car right now, in the past, I would buy cars for around $10k and keep them indefinitely. I’ve lived in cheap housing or had roommates for my entire life. Even though my latest home purchase is a large home, it’s because it’s a 2 family home and will house not only my family of 4 but my mom as well and we still paid about 1/2 of what the bank said we could afford.
Cutting out the small stuff doesn’t make sense to me unless someone is drowning in debt. Then, it feels like every purchase is digging you into an even deeper hole. Sometimes it’s also nice to do it as a way to curb the mindless spending. Sometimes you need to cut out the little stuff to realize how much “little stuff” you’re buying.
March 11, 2013 at 10:25 am
That last point is VERY true!
March 11, 2013 at 11:56 am
Very good points.
March 11, 2013 at 7:08 am
I just don’t like spending money on anything :) But I have always liked to spend money though on a nice place to live. Given our income we don’t spend enough on little things for it to be issue. Now our main issue is how much to spend on buying a house.
March 11, 2013 at 8:54 am
I use coupons to make the little luxuries more achievable – i just saved enough on a 68-load laundry detergent container to buy two lattes! I also carefully work out the bonus point program at my local pharmacy so that I just redeemed for $100 worth of groceries and toiletries, paying only the tax, and I’ll do something along those lines 4-6 times in a year.
We don’t go large, either, on the big purchases – we have one nice but not extravagant house, one car and our only vacations are with relatives. That said, we’re also essentially a one-income household so our modest expenditure plan goes to make that entire lifestyle practice not a cheerless, penny-pinching straitjacket.
March 11, 2013 at 11:57 am
Back when we were in graduate school, we’d be experimental subjects and use that to fund things like eating out. Little luxuries are really nice.
March 11, 2013 at 9:40 am
Yes, I think that you highlighted some of the best points from “All The Money In The World”.. I really liked her example that spending money on babysitting for frequent date nights (post-kids) will probably do more for a marriage than an expensive ring or pricey wedding, assuming you can’t afford to do both. For my husband and I, having the money for housecleaning and some nanny help has been a lifesaver and both are things we probably couldn’t afford to do now if we had splurged on rings/weddings years ago. However, It’s hard to spend less in the present in hopes of spending that “saved” money in the future!
I tend to save for bigger vacations rather than small weekend trips. I rather spend more on shoes/purses that I love than a cheaper one (though for clothing, I prefer a good brand on sale). However, I like to spend more on eating well daily than saving for a big fancy restaurant meal, and I don’t think good food has to be expensive anyway. I am moderate on the latte factor. I do my Starbucks trip 2-3 times a week so that I appreciate it more and it’s not a mindless habit! We rent so owning a house isn’t even a factor but right now we pay higher rent so that I can shorten my commute time, and that has contributed greatly to my happiness!
March 11, 2013 at 9:54 am
spending more on the shoes often means less painful feet too.
March 11, 2013 at 11:58 am
Definitely– I have a small number of pairs of very expensive European shoes.
March 11, 2013 at 9:52 am
Every time I watch Say Yes to the Dress (I like the pretty dresses), I always think “oh my god, that’s a downpayment for a house! That would pay of my student loans!” when I hear some of the prices of dresses/weddings.
There are small things I want to spend money on, though I notice those things tend to be emotional based. My husband has a theory that if you are consistently in a really bad place, you spend more money on the little things to try and be happy–we watch a few friends spend a lot of money on take out, movies, etc, where if they saved that they could do something bigger and nicer. Those same people tend to be poorer, having a lot of family stress, etc.
Generally, I’m with moom, I don’t like spending money. Especially on myself–I’ve done things for my niece that means tightening my budget for a week or two and it’s totally worth it. (She’s going to take over the world when she graduates, she’s so amazing.) Like my dad, I would use my allowance (when we could do that) on other people because that just felt right. I’d rather take a vacation or something. I did, when we could, spend a lot on my garden because that gave me a lot of joy. When it comes to housing (buying, not renting, we have few options renting wise), I’d rather spend the money on more house–something we can grow into, then save on a cheaper payment that also means moving sooner. Home is our hub for so much, and we both do creative arts that require space. This just makes more sense. My husband is a buy small things now kind of person, so when I took over the budget years ago and put a stop to that, we were able to buy a home in a year. He was so surprised.
March 11, 2013 at 10:03 am
Boy do I want some housecleaning. This is at the top of my list of things to spend money on when I get rid of my credit cards.
March 11, 2013 at 10:12 am
Because one of the things I want is a really super expensive thing (early retirement), I sweat both the small and big stuff. So for me, big versus small is the wrong question. You should spend less on stuff you don’t care about so you can spend more on stuff you really want. I spend less on some lattes (restaurant food, clothing) and some expensive things (cars, housing) so I can spend more on other lattes (cheese, dessert) and other expensive things (vacations, early retirement).
Also, you can save on things you really care about by spending only for your actual priorities – I really care about having my car reliable but I don’t have to buy new so long as I pick a reliable model. I spend more on shade-grown chocolate chips and whole-wheat flour than conventional/white, but my cookies are cheaper than most store-bought cookies because I cook them myself. I really want to read good books, but until I’m sure I’ll like them enough to read them over and over–or lend them to everyone I meet–I only need access, not ownership, and so can go to the library.
I can’t remember what just now, I but I was recently shopping for something and had decided that I was willing to spend more for quality, but when I looked at the choices, most of the versions that cost more were more expensive because of features I didn’t care about, not quality. So, paying attention is good, too.
And then there’s also strategizing about what makes you happy. If you want to feel pampered, do you need to visit a tropical island? Or would you be just as happy with an in-town spa or fancy hotel, a massage, a facial, or, in my case, fresh-out-of-the-oven chocolate chip cookies and a good book? Basically, whenever you’re about to spend money (or time), you can try to back up and figure out what your real goal is and then try to brainstorm if there is any better way to achieve that goal.
A new strategy I’m working on is responding to the “I deserve this” feeling with an “I also deserve that” reply. I deserve cookies–I also deserve to be thin and healthy. I deserve fast food–I also deserve to get out of this job that’s stressing me out so much that it’s making me crave fast food.
March 11, 2013 at 10:43 am
I love your ideas and spin on the “I deserve” mentality. Since reading Your Money or Your Life, I’ve been trying to use what I call Frugal Substitutes for fancy things like spas or travel. I realized that in many cases, I can get the same results for less. I’ve also noticed that many people I know work at jobs they hate and therefore, feel a much greater need to escape with expensive trips or spas. If you’re relatively happy/content with your job (and hours!), I think the need is muted.
March 11, 2013 at 1:34 pm
Yes! Love this. If you love your everyday life, do not need to pamper and escape as much.
March 11, 2013 at 11:52 am
Excellent points! That should be a post of its own, maybe two or three.
March 11, 2013 at 12:11 pm
#2: Debbie M put a comment on today’s blog post that is so good it makes me feel like we should never blog about money ever again because she just said everything perfectly (:
#1: Yes. But we will still blog about money. :)
March 11, 2013 at 12:29 pm
Aw! So sweet!
And thanks for blogging, because I need a place to put my comments! It’s not like _I’m_ blogging (at least not very publicly).
(And maybe oilandgarlic can share a list of Frugal Substitutes! We can always use more of those!)
March 11, 2013 at 12:37 pm
That would make a great ask the grumpies for this friday… maybe I’ll swap out the google questions…
March 11, 2013 at 10:36 am
I don’t spend much money on things like lattes and shopping because they just don’t interest me that much. What interests me more are things that tend to have a higher cost like travel, exquisite meals, and quality items for my home (cookware, appliances, and infrastructure stuff, not decorating stuff). Like Debbie M, I find that often prefer food that I can make at home because the quality is high and it is made to my taste. I do like dining out at really good restaurants, though, so I do that about once a month. Luckily my budget allows for me to live the lifestyle I prefer without a lot of stress, but I have made trade-offs like taking in housemates so I had enough cushion in the income column to keep that stress level low.
March 11, 2013 at 10:41 am
I like to think I’ve got a balanced approach, but part of my balance involves the husband. He’s a “small indulgences” guy for sure, and grew up in a family that apparently never conceived of saving money. I won’t know till the taxes are done what our current net worth is, but I can tell you almost all of our assets were accumulated by me. Sometimes this tweaks my last nerve. Most of the time I just don’t think about it, because his income is key to our quality of life in the present day – which to me is truly just as important as future goals. That whole carpe diem thing, you know.
Small things I DON’T spend much money on anymore include: lattes :-) facials, massages, professional hair coloring/cuts, dining out. Things I’ve never spent much money on: help around the house, mani-pedis, designer clothes, shoes.
Big ticket item where we’re frugal: our cars. His is a long-paid-off 1999 Accord, mine is a 1995 Accord that I bought used for $6000 cash.
Big ticket item that seems like a pure luxury: three weeks per two years of timeshare. This was not cheap. But it gives us a LOT of vacation time in very nice locations for basically $1000/yr – that includes maintenance, exchange fees, and taxes. No matter where we go, this cost does not go up. So if we are feeling pinched, we use a drive-to location. If we are feeling flush, we book a fly-to location. This was a lifetime lifestyle purchase. It’s technically an asset, since theoretically we could sell it, but we didn’t buy it as an “investment.”
Big ticket item that is nevertheless a frugal choice: renting our huge expensive apartment. We get a ton of square footage, centrally located, for 1/3 the cost of buying. We decided that being able to shunt money toward a future retirement property was a lot more important (having a paid-off residence in retirement = low cost of living) than being homeowners in midlife.
Our single biggest “luxury” category is actually our sport (ballroom dancing). We spent about $5000 on this in 2012. We have a heavy competition season about once every three years, so if you average it out it’s less than $2000/yr.
March 11, 2013 at 6:52 pm
my total cheapass mom seems to consider her spendthrift second husband her “big expense” she gets after all those years of pinching pennies. Maybe your husband is enough fun to be worth it?
March 15, 2013 at 10:23 am
Rosa, he definitely is. :-)
March 11, 2013 at 11:37 am
Fortunately, I’m in a financial position now where I can have both. I’m a “sweat the big stuff”/ go for the big wins type of person, thanks to my economic and educational privilege. I’m with Vanderkam: people of means who nickel and dime over drinks – which amount to a de minimus percentage of their financial lives – are probably wasting their precious time and are missing little opportunities for happiness.
I understand lattes are a common bete noire of many PF writers. Latte = addictive substance, no? Caffeine (plus sugar) is not my “drug of choice” (an oxymoron). Despite the downturn, Americans have continued, if not increased, their consumption – and Starbucks raised its prices. I don’t doubt that most people would be happier if they indulged their $6/day addiction/habit more often. Although I’m not sure addictive substances necessarily follow the free market and personal choice rhetoric, yes, “only you know the shape of your utility function.”
March 11, 2013 at 11:42 am
Well, there is a theory of rational addiction, by Gary Becker, but it’s generally thought to be garbage. (Becker also proved that discrimination cannot exist! And that women belong at home! Yay!)
PF folks don’t think you should stop drinking coffee, just that you should purchase a french press and make your own.
March 11, 2013 at 12:00 pm
Accept the addiction (or deny it is one), just lower its costs. Makes sense, j’suppose.
March 11, 2013 at 12:01 pm
I am on the verge of hiring a cleaning lady. I’ve been saying it for years. At this point, I don’t care about the cost anymore. Nor do I care about giving a few splurge type items up. I’m just tired of cleaning=/
March 11, 2013 at 4:24 pm
Heh, if you can afford it, go for it. Maybe earmark some of your extra side-income to it. You need that time for writing!
March 11, 2013 at 12:15 pm
I definitely like to keep fixed costs low so we can have as much discretionary income as possible. For us this looks like buying a house we can afford on one of our incomes and saving up for big purhases.
Finding Elizabeth Warren’s balanced money formula changed my financial life! It works so well as a starting point. Now we save more than 20%, but it really helped me figure out my basic buget, and helps even more now that I have a family and we have lots of expenses.
March 11, 2013 at 12:34 pm
I enjoy both, in very different ways. But when I’m strapped for money, the little indulgences feel more important: they’re a way of asserting that I’m not THAT broke, and being able to spend a few dollars frivolously makes me felt, weirdly, more secure.
The way I try to manage this is to convert a more expensive daily indulgence into a cheaper one. In grad school, I’d gotten into the habit of buying a cup of coffee (just a regular coffee) at my favorite coffee shop/roaster as I walked to class or the library. The coffee made me happy, and so did the ritual. But that was $1.60 a day, and 2-3 times a week I’d buy a croissant too, and I felt like I should tip at least $0.50. . . and given my stipend, that added up. So I bought a French press and travel mug, got a decent grinder for Christmas, bought beans from the coffee shop–and had a slightly different ritual at home every morning. I figured I saved at least $60/month (which I put in my IRA).
For me at least, this frequently works. When I recognize that I’m tempted to spend money just to get a happiness jolt, I make cocktails at home, I sort through and polish and repair my shoes, try to rediscover old items in my wardrobe, and that sort of thing.
March 11, 2013 at 4:27 pm
That is so true– when you’re strapped for money, little indulgences help keep a person sane. Even if you have to become a research subject to get them!
The problem with DIY coffee though, is that eventually you get really into it and start roasting your own beans, and goodness knows what else. Or maybe that’s just my partner.
I should polish my shoes. I wonder where I put the polish. Maybe I’ll go do that right now.
March 11, 2013 at 8:27 pm
What are you talking about? You have to GROW your own beans! Wait, you have to BREED your own coffee beans. And change the environment in your house to what’s best for coffee beans.
And Flavia, I’d like to hear more examples you’ve found where you can convert more expensive indulgences into cheaper ones.
March 11, 2013 at 8:31 pm
Oh lord, is that what is next? I don’t think we’re in a coffee growing climate… would he have to get a greenhouse or do something indoors? No wait, I don’t want to know.
March 11, 2013 at 8:47 pm
I’m not in a coffee-growing climate, either, but I’m seriously thinking of growing hops in my back yard to trade with the micro-brewery down the street so I can get some really good beer in exchange. Is that being obsessed? ;-)
March 11, 2013 at 1:58 pm
I want to increase my big wins (make more $$, drive a cheaper car, live in a smaller & cheaper place) so I don’t have to sweat the small stuff as much. But on the other hand, I need to make sure the small stuff doesn’t get out of hand, or that my definition of “small” doesn’t expand and outpace my resources.
March 11, 2013 at 4:29 pm
That’s true– small expenses can creep up into a larger portion of one’s budget. Maybe not a $5 latte, but $50 here and there… it can add up. Occasional mindfulness can keep that in check.
March 11, 2013 at 3:21 pm
I used to just try to not spend any money at all, which was bad because I would guilt myself about spending. Then I added in luxuries to my budget. I later realized they didn’t necessarily make me happier. So now I’ve adjusted to trying to think about if what I’m spending will make me happy. I’ve been cutting my budget with no mercy lately, but only hitting the things that I don’t care about or that I can cut costs without losing what I really want from the thing. Example: See my cell phone! It’s still the same! I just don’t have to pay for unlimited data any more when I only use < 100 MB if i even use it!
Last summer, I developed the habit of buying cold chocolate drinks 2-3 times a week at like $3 each. Between that and lunches out that were too big for me, I spent a lot during the work day. I'm now down to lunch out once a week and the free tea/hot chocolate and I'm not any less happy. The key, I think, has been to make those little things a treat rather than a frequent thing.
One thing I do when I go out to a restaurant is that I'll often have water to drink (no alcohol) and then order dessert. Or split an entree and an appetizer or an entree and a dessert with the friend I'm eating with. Sometimes I'll even take the dessert home. I know I could make tasty desserts at home, but then I would eat so many of them! I really want to bake cookies, but I'll probably end up with way more than I should eat by myself and then what do I do? Get fat?
As for big ticket things…I bought my car new, from a dealership, but I bought a fuel efficient subcompact and I paid for leather seats because they're awesome. I also bought a two bedroom condo that was at the higher end of my price range, but the HOA dues and property taxes turned out to be cheaper than other places, so it kind of worked out not too badly. Sure, I could have bought a five bedroom house in the suburbs for less money than my condo, but this way, my electric bill isn't that bad and I'm not driving that much still. I wish I could get those SFH mortgage interest rates though… Totes jelly of those.
March 11, 2013 at 4:36 pm
That’s a good point– if you’ve stopped savoring something (especially something high calorie!) because it’s routine instead of a treat, it may be time to cut back.
And you are absolutely right about baked goods. One thing you can do is freeze the dough and use it in small portions, but really it seems like a better idea to just buy a cookie from time to time, assuming you have a place that makes good ones.
March 11, 2013 at 7:33 pm
I am sure there are any number of people who would be thrilled to help you with excess cookies. Not that you shouldn’t get desserts out- creme brulee is pretty much my idea of the epitome of important luxuries (and I never did figure out how to make the blow torch work)- but for happiness maximization, giving things away is always a good idea.
March 11, 2013 at 7:34 pm
you can make creme brulee in the oven using the broiler, btw
http://www.thekitchn.com/how-to-make-cr-brle-at-home-139072
March 11, 2013 at 6:12 pm
I do a little of both. Balance is the key. I started using cash to control the small stuff spending. It’s actually allowing me to do some of the big stuff (i.e. vacations, etc.) (David Bach’s point). BUT, I absolutely LOVE the idea in the book All Your Worth. Sometimes it’s nice to know how much you can spend without counting every penny.
March 12, 2013 at 12:31 pm
….and I open up my Vanguard e-newsletter today to find an article about this same topic! https://retirementplans.vanguard.com/VGApp/pe/EducationNewsCenter#al=false&st=Debtandspending&sst=ALL&articleId=7323&smt=ALL&ps=0&tab=libraryTab&libView=AllTopics&po=10
March 12, 2013 at 12:33 pm
:)
March 12, 2013 at 7:36 pm
Hey, you and Vanguard are of the same mind! Thanks for posting this. On the small, frequent pleasures vs. larger, infrequent pleasures, the best analogy I found was that good sex three times a week beats mind-blowing sex three times a year in terms of overall happiness. Makes sense to me.
March 12, 2013 at 7:39 pm
Well, given that the Vanguard article was written by Laura Vanderkam about her book…
And right now, with the baby still being a baby, I would totally go for the 3x/year mind-blowing option. (Especially if I could get anticipatory pleasure from it.) Different preferences for different times!
More realistically though, that’s not the right trade-off. Don’t orthodox jews have sex once a week except when the woman is menstruating? From what I understand, (or rather, from the NPR article I heard on the topic years and years ago) that translates to mindblowing sex 3x/month, for which they are willing to forgo more frequent but more mediocre intercourse.
March 12, 2013 at 7:01 pm
Hm…now I have to wonder exactly what is the shape of my latte-utility curve? And should the x-axis be in units of time or stress?
March 12, 2013 at 7:07 pm
Well usually it’s “lattes” on one axis and “everything else” on the other.
March 12, 2013 at 7:52 pm
We totally forgo the supposed big luxuries of our income range–fancy cars, expensive jewelry, fur coats, boats, etc–so we can enjoy the more day-to-day enjoyments: first class plane tickets, nice hotels, fancy dinners, good wine, AWESOME CHEESE!
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