What if we didn’t judge every purchase by price per unit, investments by total return, or cars by miles per gallon? Many people can get trapped in over-optimizing. It’s even worse when you’re optimizing for the wrong thing.
The Over-Optimizer
I’ve been as guilty of this as anyone. When I buy a new car, I run several trials with different grades of fuel to determine the lowest price per mile. It takes about a month or two to run three full tanks of each grade through, but once I’m done, I know exactly which fuel to buy for that vehicle.
In case you’re wondering, it’s usually the mid-grade or higher octane that yields the lowest cost per mile, but not the “super, ultra, mega specialty additives” version. So, like the 89 or 91 octanes usually. My old truck actually did better on the low-octane stuff, go figure.
Sometimes There’s No Option for Optimization
Sometimes, though, optimizing isn’t even possible or suggested. For instance, my motorcycle, Vicky, needs high-octane fuel—period. I’ve had to fuel up with lower-grade fuel, and Vicky notices a difference. No time or energy is wasted optimizing. I don’t ride a motorcycle for fuel mileage. I ride a motorcycle because it’s fun, gives me time inside my own head (without the ability to take immediate action), and makes me feel alive!
Picking on Coffee is Futile but Fun
My normal coffee order from Dunkin’ is a large, hot, French vanilla, cream, and no sugar. Gasp! I’m buying coffee! Don’t worry; it’s not going to break my budget.
But why order the large? In theory, your price per ounce decreases a tiny, fractional amount when you buy a larger size. So, it’s technically a “better value” than buying a smaller size because I’m “getting more for less.” But does buying a large over a medium yield any more happiness or satisfaction?
I think not. Therefore, your “return on satisfaction” is actually lower when you purchase more. This is a “diminishing rate of satisfaction” of sorts.
A Little Experiment
Actually, I tested this theory. I bought a medium coffee (hot, French Vanilla, cream, no sugar), and I compared that to the large coffee experience. Using only the most scientific of methods (pouring different amounts of coffee between medium and large cups, measuring the difference, and pouring the difference into my mouth), I determined there was precisely one mouthful more of coffee.
So, then, how much more satisfaction do I get from one more mouthful of coffee?
The last few times I’ve bought coffee, I’ve ordered a medium. I’ve noticed zero difference in my level of satisfaction. The only difference I notice is how programmed I have made myself to say large instead of medium and the size of the cup in my hand. There’s no return on satisfaction.
Making “Big Coffee” Richer
When you look at it from this lens, the only thing you’re doing when you buy the large or extra-large versus getting a medium or even a small is making “Big Coffee” more profits. You could also go down the rabbit hole of deciphering if they’re publicly traded, if you directly or indirectly own their stock, etc., but I’m definitely not doing that.
These big companies are experts at creating perceived value, influencing your behavior, and maximizing profits. They could care less if your actual level of satisfaction and happiness is higher.
Where Else Am I Getting a Lower Return on Satisfaction?
This got me thinking about all the other decisions we’ve made based on maximizing “value” (price per unit) versus the actual return on satisfaction (amount of happiness derived from that purchase). If I spend more and get more, but my happiness doesn’t increase, did I really do the right thing?
What’s the Real Impact?
If I paid less and got the same amount of satisfaction, then I could save that money to spend on something else. Granted, switching from a large coffee to a medium or small coffee isn’t going to get us one more vacation per year on its own. However, there are likely many other daily, weekly, and monthly decisions that can compound into something much larger over time.
Amazon Trickery and Deceit
Another example is the shift in Amazon prices over time. It used to be that Amazon was very competitive in price for many items, so much so that we eventually stopped looking anywhere else for things. We get “free” shipping through Prime. Their price seemed good compared to other options, so we hit the buy button without much thought. Then whatever widget or thing arrives at our house in a day (or sometimes an hour or two).
We’ve noticed that Amazon is more expensive in several cases. My wife recently bought a new salad spinner. She ordered it on Amazon without much thought. When she was at Walmart for something else, she saw the same salad spinner for $6 less. Once again, it’s not a huge deal, but that’s about two large coffees or a little over a gallon of gas.
As you might know, these little things compound over time. I had to ask myself, “How many decisions like this do you make a week? A month? A year?”
A Little Spending Analysis
In the first six months of 2024 alone, we had 587 transactions. This doesn’t capture all of our transactions or individual items purchased, either. We buy groceries in cash; many items are purchased in the same transaction. Suffice it to say that we probably buy thousands of items each year.
A Little Coffee Redemption
Going back to the coffee example, I got curious about how many coffees I bought in the past year. It took me a minute to pull all the transactions from our main checking account and my personal spending account (my “allowance” account).
How Much Do We Spend on Coffee?
We went to Dunkin’ 43 times in the last year. If my decision to go with the medium vs the large saved me 30 cents for each trip, I’ll only save myself $12.90 per year. “Hey Honey, I’ve solved all our money problems!”
Yeah right! Even if we had stopped going to Dunkin’ altogether, we would have only saved $284.75 in the last year. If you’re struggling to get started or drowning in debt, you should definitely think about how much you’re spending on stuff like this.
Coffee Spending Doesn’t Move the Needle
For us, $285/year is not a game changer by any means. We’re debt-free, all our bills are paid, and we have enough to go on several modest family trips a year. Our needs are met and then some.
However, let’s not get distracted from the main problem I’m trying to solve here—satisfaction. Does spending that $285 per year add happiness or fulfillment to my life? Sometimes, yes, it does.
Watching the Cars Drive By
One of my favorite things to do with my son is go to the Dunkin’ down the street to get breakfast together and watch the cars drive by. “Dad, look! That’s a classic!” [points to an old, beat-up car] I’m smiling and chuckling a little even as I write this.
When I’m too old to have these moments with my son, I think I’d probably be willing to pay every last dollar to recreate those memories. Therefore, I’d rank the return on satisfaction for those trips to Dunkin’ very high, maybe even exceptional. So, I don’t think I’ll give Dunkin’ the boot just yet.
However, most of the time, I’m buying coffee because I just want a quick pick-me-up. I could easily do that with a cup of coffee from the break room or something. I’d say my return on satisfaction for those cups of coffee is fairly low, maybe undetectable.
What Else Am I Under or Over-Optimizing?
Where else are we not optimizing for satisfaction and happiness for the sake of saving a few dollars? Instead of going out to eat, should we DoorDash or Uber Eats and watch a free movie at home together? Or should we skip two “regular” nights out and go to a fancy steakhouse one time instead? Should we go camping in a tent instead of the nice VRBO at the beach for a week?
I feel like there’s a balance between all these things. I want to start asking myself more qualitative questions like:
What’s the context of the purchase?
Did this purchase change our lives for the better or for the worse?
What memories will this purchase help me make?
When you come from a place of scarcity like we did growing up, you can get stuck in the rut of optimizing for each penny at the expense of your own well-being. Being able to scrimp and save might literally be survival skills at the beginning of your financial journey, but they’re less important as you find success and build wealth.
So, What Should I Do?
This leaves me with the question, “What should I do then?” I think the answer is to reframe how I think about spending and saving. I think taking a moment to stop and ask, “What’s my return on satisfaction?” will probably make a huge difference.
So, before I head out the door to take my son to breakfast, I’ll leave you with this question for you:
What’s your return on satisfaction?