Buy those designer sunglasses!

Crown Money, where we show you how to pay your home loan off in up to half the time of a normal bank loan. Welcome to the Crown Money podcast. My name is Jessie Edge, money expert here at Crown Money, and I'm joined by CEO and money guru Scott Perry.

Hey, Hayden.

Today I want to talk about what a lot of people would consider a dirty word, a budget. Everybody thinks that when you budget, you have to give up on everything and that you have to scrimp and save and spend, not spend your hard earned money. But we have a different approach, don't we?

Yeah. I think the word budget instantly means restrictive. And I'm being restrained and I'm not able to sort of spend freely. No one likes to feel caged or restricted. And so we are all about spending plans compared to budgets. And so what a spending plan is is just write down where you spend all your money, then from there analyze it. And then there's two sort of measures that we like to look at when you are going through these figures, that is cost per unit of fun as well as cost per use. And so a spending plan is where all your money is going. And then let's actually find out where the value is. Because where most people go wrong is they're spending money on shit that doesn't make them happy.

Yep.

And what we want to do is just double down on stuff that makes me happy and then scrimp and save on stuff that doesn't make me happy.

Give me an example.

Okay, so let's look at this here. When I'm seeing people who will buy a garment of clothing, whether it be a dress or a suit or a T shirt, and it costs, say $600. But some people have this mindset of I can't let anyone else see me wear the same garment twice. And so you buy this $600 dress or shirt, whatever it may be, and then you wear it to a wedding, for example, and then from there, everyone thinks it's amazing. You look great. Excellent. Handbags are another thing as well. Once someone's seen you wear it once, that doesn't mean that you can't wear it again. But in people's mind, they think, I don't want to look like I can't afford new clothes all the time. So if I buy a garment of clothing for $600 and I'll wear it once, my cost per use is $600. Yeah, that's horrific. Now let's flip that. Sunglasses. We use sunglasses a lot. Probably not as much as what we would like to in Melbourne. But if you're buying a pair of sunglasses for $300 and you don't lose these sunglasses for two years, which is world record for me, that means that you've got really 600 uses out of them, but they only cost you $300. So my cost per use is 50 cents.

Yeah.

That's exceptional. Deal.

So getting more value out of it.

Getting more value out of it. 50 cents versus 600. I mean, that is a crazy difference there. Things like beds, pillows, shoes, watches, all these things that we actually use every single day of our lives. Computers we should double down on because they are the things we're going to get. A cost per use of a very small amount versus those once off purchases where we use it once or twice, maybe now we never see it again, that sits in the closet and gathers dust.

Yep. Fair call. So cost per use. So it's saying, what am I going to use the most? And that's what I'm going to spend my money on. I guess there is like a few degrees there though, because, you know, somebody might say, well, I use my car every single day, therefore shouldn't it be the most expensive thing that I could possibly buy?

Definitely not. That's not how we bring this in.

Because I'm going to go buy a Lexus right now, if that's right with you.

Well, let's, let's do the numbers. You buy $100,000 Lexus.

Yep.

And let's say you use that for five years, which is not many people will hold it for five years, but let's say for five years and use that car maybe 300 times a year. And 300 times five is 1500.

Yeah.

So you get $100,000 divided by 1500. That cost per use is excessive. Excessive.

It's big.

Not to mention it's not worth $100 anymore. It's going down by at least 100, $200 a day. So not only sort of your cost per use is very, very high, but the actual liability is reducing week on week, year on year. And as a result, it's going to be worth even less. I mean, about 60% less in four years.

Yeah.

So I'd love to hear from you. What, what about cost per unit of fun?

Yeah. So this is a great concept and a lot of people haven't actually heard of it or have sat down and thought about it. And I think maybe subconsciously we do it a little bit. But the whole idea is to understand if I'm going to spend my money on something how much fun am I actually going to get out of it? And a lot of the time, if you do the maths, you'll be surprised. And people will be spending money on things that they think they're going to get a lot of enjoyment out of. But really in the long term, or what we call cost per unit of fun is actually really high. So a perfect example is, I don't necessarily love. This is such a bad thing to say, but I don't love going out to dinner with my kids. I've got two young kids, and if anybody out there has kids, you understand this. Going out to dinner with them is a nightmare. Like, it's actually so annoying. And you're just sitting there going, Every single time I do it, I keep convincing myself that it's going to be awesome. Every time I go out, I sit there and go, why did I bring my kids? This is just so difficult. So the maths basically works out that you go, what does this cost me? Divided by what I think the units of fun are that I'm getting out of it. And so we generally say, choose a number between 1 and 10, 10 being the most fun. So for me, going out to dinner with my kids probably costs about $100 in the end, and my units of fun out of that is probably a 3 out of 10. So for every unit of fun, that dinner is costing me $33. On the alternative, I love going out to dinner with my husband or going to the pub with friends or whatever it may be, and getting a babysitter. No kids. It is the answer. It's the secret to life. So I would consider that 10 units of fun. It's a 10 out of 10 for me, one of my most favorite things to do. So if the dinner with my husband and a babysitter costs $250, I divide that by my 10 units of fun, and that therefore, those units of fun are costing me only $25. So although the dinner and babysitter has cost me more than going out to dinner with the kids, the cost per unit of fun is less. It is more valuable to me to do that. So that's. That's where you can start to distinguish between what you should be spending your money on and what you shouldn't.

So, in summary, no kids, no problems.

Yeah. No, I mean, it's just realistically, taking a step back, looking at the things you're spending your money on, and really asking yourself, am I getting value out of this? Am I really enjoying this? Is my fun?

Is it worth It, Yeah, we had a client recently during the coronavirus where she started really assessing all her expenses. And she sort of worked out that she was spending all this money every single month on her hair, her lashes, her eyebrows. And she obviously it was almost.

Was it almost like six, seven hundred dollars a month, I think, if not more?

And she couldn't get it done because she was in isolation and you can't go and visit a beautician. And she was like, wow, I'd usually be spending $600 on all. All this every single month. And I actually don't get a lot of happiness out of it. I actually don't get a lot of value out of. My cost per unit of fund is very low. It's cost me a lot of money then. So she just come to this realization, what have I been doing? I've now got $600 extra to spend on stuff that makes me happy, rather than spending on stuff which I thought made me happy. So it's such a huge realization for her. That was one of the benefits that came out of the coronavirus isolation lockdown is she assessed everything and then went through everything with a fine tooth comb and said, that makes me happy. That does not. And then she really just realigned her mindset. So I'm just going to spend money on stuff that makes me happy. And having happiness as a North Star was huge revelation for it.

And I think the other big thing about the coronavirus, it made people realize that you can actually have a $0 per cost, like $0 cost per unit of fun. There are things that we can do, especially with our families or whatever it may be going for a beautiful walk, going for a bike ride, going for a bush walk, going for whatever it may be, spending time with the family in the backyard, like a movie in the backyard. All these things don't actually cost us anything, but we're getting huge units of fun out of it. And it's about, you know, it's about a bit of a. Take a step back, have a bit of perspective, you know, you don't actually need to even spend money on your units of fun. Find where your units of fun are. And that's where you do direct your money if you have to.

Exactly. So hopefully you guys got a fair bit of value out of that cost per unit of fun. And then from there, the cost per use.

Yeah. And I think at the end of the day, it's important when we step back and talk about budgeting and we talk about a spending plan, it's just having a plan for where your money goes. It doesn't mean you have to be strict. What we always suggest is that you incorporate those things that you get a great cost per use or a great cost per unit of fun. You incorporate those things into your weekly budget. And you say, I am going to spend money on this every month. I will go out to dinner with my husband and get a babysitter.

Yeah, just prioritize the stuff. You know, like, we work so hard for so long. It's about enjoying the journey. There's not about being on bread and water so you can be on a debt faster. This is just about enjoying what you're doing and making sure you're having fun doing it. And it's making you happy. And that is by no way a waste of your money.

Absolutely.

Great.

Thanks, Scott. Great to chat.

Pleasure.