There is a quiet, pervasive anxiety humming beneath the surface of the personal finance community. We are perpetually stressed about spending money. Some of us are terrified we are spending too much, while others worry we aren’t spending enough. Both extremes are problematic.
The root of this anxiety is simple. We spend far too much time obsessing over the actual sum in our bank accounts and not nearly enough time thinking about what that money is actually doing for us.
When we shift our focus from the math to the meaning, spending falls into four distinct categories. The first three are straightforward, but the fourth is the secret to a well-lived life.
First, there is necessity. We have to keep the lights on. This is the money we allocate for shelter, heat, and food. It also includes the basic requirements of modern life, like your smartphone or your watch. These are the absolute non-negotiables.
Second, there is generosity. When we find ourselves with a surplus, giving back is one of the most reliable ways to generate joy. Whether it means supporting family and friends or donating to a philanthropic cause, generosity makes us feel good. It is deeply connected to our happiness.
Third, there is frivolity. Frivolity gets a bad reputation, but it shouldn’t. This is the money spent on things that make life immediately more enjoyable. It is the upgraded house, the beautiful meal at a nice restaurant, or the random impulse buy that brings a smile to your face. The catch with frivolity is that its benefits are fleeting. It makes us happier in the short term, but it rarely moves the needle on our long-term fulfillment.
Then we arrive at the fourth category. This is the one that matters most.
We should be spending the bulk of our extra money on identity.
Identity is who we are. It is also who we hope to be when we are living as our best, most authentic selves. When you have a clear sense of your identity, it naturally gives birth to a set of intentions. Those intentions then drive your actions in the real world. This process of taking action is what I call your “little p” purpose. It is the act of bringing your internal identity to life, and it is the most reliable path to genuine happiness.
Let me give you an example.
Part of my identity is being a writer. My intention is to create works that resonate with people and affect their lives. The actions I take to support this are writing books, publishing blog posts, and recording podcasts.
So, where does the money come in?
Spending on identity means directing your resources to support those exact actions. For a writer, that might mean hiring a writing coach. It might mean paying for classes, enrolling in an MFA program, self-publishing a project, or buying a ticket to a writing conference. You are using your capital to fund your intentions.
When you look at your finances through this lens, the old debates start to lose their edge.
It really does not matter if you subscribe to the philosophy of dying with zero. It also does not matter if you die with millions of dollars sitting in the bank. The final math is just a distraction. What actually matters is how you spent those resources along the way.
If you want to spend correctly, you need to hit all four categories. You spend on necessity to survive. You spend on generosity and frivolity to feel good in the moment. Most importantly, you spend on identity to become the best version of yourself.
If you can do that, you are moving closer to true happiness. You are finally using your money to support a better life. At the end of the day, it does not matter how much you spend. It only matters how you spend it.
Did you catch this week’s episode of Earn & Invest (Click to listen)?
Two quick community updates before I go:
1. Chicago Meetup! I’m hosting an in-person Earn & Invest meetup on Saturday, October 3rd at 7:00 p.m. We’ll be hanging out at the Duke of Perth (2827 N. Broadway St., Chicago). I’d love to see you there to talk money, purpose, and everything in between.
2. The Happiness Code Pre-Sale Raffle My next book, The Happiness Code, officially drops on March 9, 2027. If you pre-order your copy now and email me the receipt (docg@diversefi.com), you’ll be entered into a raffle to win 50 copies (a $1,000 value) to donate or gift to your favorite organization, library, or community group.
See you in Chicago,
Your writer example makes this tangible, Jordan. I wonder whether the useful test for identity spending is what happens after the purchase: do we actually write more, practise more, or spend more time with the people we want to show up for? Buying something can make us feel closer to an identity before we’ve done anything to live it. Funding the habit seems the more interesting challenge.
I love this way of looking at spending! In the past, I have tried to align spending with values but struggled to land on what that really meant. I can talk myself into valuing a lot - personal vs family vs societal values, etc. At some point everything matters. With this framework, necessity + identity are probably what I need to focus on for happiness with generosity and frivolity just being a bonus (assuming part of your identity is not either generosity or frivolity). Thank you for this!