Back in 2010, Milton Friedman’s insights on the four different ways to spend money struck a chord with me, especially as I grappled with high taxes and grueling work hours in the finance sector. By 2012, I had left that high-pressure world, and now, living a more relaxed lifestyle, I find myself much happier, less taxed, and significantly less stressed.
With potential tax increases looming under the Biden-Harris administration, it’s a great time to revisit Friedman’s principles. He highlights four main ways to spend money:
1. Spending your own money on yourself – Here, you’re likely to be most vigilant about getting the best value.
2. Spending your own money on someone else – Caution is still a priority, but perfection in value may not be as crucial.
3. Spending someone else’s money on yourself – While you might still seek quality, the pressure to maximize value lessens.
4. Spending someone else’s money on someone else – This is where spending becomes the least efficient, often leading to the least concern over how effectively the money is used.
This framework is particularly relevant when considering government spending, where the use of taxpayer money doesn’t always align with personal spending diligence. Personal experience has taught me that using a corporate card for client entertainment requires balancing generosity with accountability, as overspending could lead to personal financial repercussions.
Unfortunately, the nature of politics often involves spending others’ money on others, where there is little incentive to minimize costs or maximize value. Politicians, who should ideally steward public funds wisely, often push for higher spending and taxes due to their personal biases and the mechanics of political survival.
The real challenge lies in aligning our spending habits and government policy to ensure fiscal responsibility and effective use of resources, advocating for transparency and accountability in how public funds are used. While it’s easy to champion increased government spending or higher taxes, true fiscal responsibility starts with individuals advocating not only for policies that align with their personal values but also for those that ensure efficient use of every dollar spent.
