The ways we spend money

Milton Friedman describes four ways we spend money.

1.     Spend your own money on yourself.

2.     Spend your own money on someone else.

3.     Spend somebody else’s money on yourself.

4.     Spend somebody else’s money on someone else.

One way or another, this is the way money gets spent. When you are in control of your own money you have a high incentive to pay attention to price and value. When you spend somebody else’s money you have less incentive to pay attention to price and value.

We often see government money as someone else’s money but that is an illusion. Government money is our money and we best start paying attention to price and value.