Putting a Price on Fun

A few years ago, my wife and I considered buying a boat. We both grew up water-skiing on the lakes here in Utah, and some of my best memories involve being on the water. I was talking about this with my friend Eric, because he has a boat, and he introduced me to his “cost per units of fun” concept.

“Over the years,” he said, “I’ve looked back carefully at the things we’ve done that have been the most fun for our family. Above all else has been our trampoline. It cost us considerably less per unit of fun than anything else I could think of. In second place were our motorcycles. Then way down on the list, like a long way down behind motorcycles and trampolines, was the boat.”

Now, whether you agree with that hierarchy or not (or their particular choices or tastes), the concept itself is extremely cool. We have seemingly unlimited options for fun, which is great. But we all have limits on the time, energy and money we have. Even if you are a millionaire retired at age 40, there are still only 24 hours in a day. We are constantly faced with decisions on how we spend these limited resources. Whether you are aware of it or not, you are doing those calculations all the time. We all are.

Consider something as basic as dinner. I used to really like going out to eat. I thought it was fun. But over time, I found that taking our four children out to dinner wasn’t always the most fun. Making dinner at home, especially on a Friday or Saturday night when everybody was around and involved, now that was awesome. We spent years going out to eat before we did this back-of-the-napkin calculation based on what my friend had mentioned about the calculation of cost per unit of fun.

Here’s how the formula works. You start by putting the total amount you are spending in the numerator. Then, in the denominator, goes a guess of the units of fun you get from the activity. Now, I realize that is totally subjective because there is no standard unit of measurement for fun. But we’re not going to let that get in the way. Just make a guess. In the end, the only measure of fun that matters is your own, so your guess will work just fine. But to make it a little easier, we are going to use a scale from one to 10, with one being the least fun and 10 being the most fun.

Let’s go through this calculation together with the dinner example. First, we start with the cost. We’ll assume a meal out with the family costs $100. In this case, we would put $100 in the numerator. Then, we’ll just take a guess at the units of fun. Over the years, we’ve discovered that for us, eating out is about a four. What we have, then, is $100/4, or $25. So eating out costs us $25 per unit of fun.

Now, let’s compare that with making dinner at home. Typically, eating in costs a little less, like $80. So $80 becomes our numerator. For us, eating in is a really fun experience, like a nine out of 10. So for our unit of fun, we use nine, and $80/9 equals $8.89.

There’s a huge difference between $8.89 per unit of fun and $25. The calculation made our decision much more clear. Eating at home costs us considerably less per unit of fun.

This formula has its shortfalls. It’s not great for comparing a drive in your $50,000 car with going to the free concert at the park. It may not even be valuable in that situation. But I’ve found it to be an incredibly useful tool for comparing similar activities. It doesn’t really matter what number you come up with. The point is to use the formula to help gauge which activity or purchase will give you the most bang for your buck. And the boat did not win out in our family, since we decided we valued other forms of outdoor activity much more.

Try using this formula in your day-to-day decision making and actually think it through. Pull out a napkin, put a value in the numerator and make a guess at the denominator. If you are like me, and everybody else I have ever talked to about this, I bet you will find examples where you say, “Wow, I spend a lot of time on that, and I don’t even really like it.”

That will give you the information you need to start making different decisions, and you can start minimizing the cost per unit of fun on the things you like to do as we roll into a new year.

This commentary originally appeared January 4 on NYTimes.com

By clicking on any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements or representations whatsoever by us regarding third-party Web sites. We are not responsible for the content, availability or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products or services available on or through them.

The opinions expressed by featured authors are their own and may not accurately reflect those of the BAM ALLIANCE. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.

© 2016, The BAM ALLIANCE

Carl Richards, CFP®

Carl Richards is the creator of the weekly Sketch Guy column in The New York Times and is a columnist for Morningstar Advisor. Carl has also been featured in The Wall Street Journal, Financial Planning, Marketplace Money, The Leonard Lopate Show, Oprah.com and Forbes.com. His simple but meaningful sketches served as the foundation for his first book, "The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money."

Foundational Materials

Buckingham prides itself on producing a wealth of non-biased financial information on a regular basis. See these articles from our blog and from our thought leaders around the nation.

Buckingham Library

Click on the covers to learn more and order the books our national thought leaders have written in recent years.

Previous Slide
Next Slide