Your Mental Approach to Spending

[KJS]

I am curious to hear how people approach decisions whether or not to spend a large sum of money. You can define large relatively (that is 1/2 my weekly pay) or absolutely ($200 is a lot for that item) for the sake of answering the question. Basically, I am curious what kind of utility/value calculation process people go through when they are faced with a purchasing decision.

I find this interesting as I progress from being poor to middle class. Due to a lot of factors I went from being poor worker to poor student to poor worker again to middle class worker. But I find that I have held on to many of the same approaches to money and spending as my poor self as my income grows. For instance, I can afford to buy a new car but I drive a 1991 Subaru that I bought for $900 3 years ago. I just can't rationalize getting rid of it and increasing my monthly expenses by hundreds of dollars a month just to have something new. Even though I could do so without a huge affect on my finances.

I also have what I call the 90% rule of money. I have decided over the course of my life that I cannot logically define the utility I gain from 10% of my net worth. Meaning, if I woke up the next day with only 90% of the money I have now, I am not sure this situation would affect my emotions negatively. I just don't think I would care that much. Therefore, if I find an opportunity to do something or buy something that costs less than 10% of my net worth and I think I will derive some measurable positive utility from, I will get it. Not always but very often.

I also get a lot of sideways glaces from friends because I treat money differently depending on the source from which it came. If I win big at poker some night, I am pretty likely to take the wife out for a nice dinner or buy a new toy. Or I went without a new couch for years until I got an inheritance from a death in the family, despite having money for that couch in savings. Friends counter with the approach that it is all one big pile of your money, who cares where it came from. They say every decision to spend should be based only on the price, value and utility of what you are getting.

I am interested to hear how people approach whether or not to buy something they can afford but also costs a lot (to them or in some absolute terms). Could be a new motorcyle or car, "expensive" meal, trip around the world, new TV, whatever. Something where you will wake up the next day with noticably less cash but something to show for it and wonder if you did the right thing for youself.

KJS

[guids]

I don't care about the actual money, and caring about the source of the money seems kind of stupid (no offense). All I really care about is bringing in as much money as possible, and then when I decide to make a purchase, I weigh factors such as, do I really need this? how much of my time will be spent using this item? is it worth the money? For larger items, I figure if it will help/hurt my credit score, would the money be better in savings, etc. A lot of things that I buy, even though I may not need them now, if they are an extremely godo deal, Ill get. Eg, I have no room for a couch right now, but if I planned on moving in six months, and foudn a 1500$ couch for 500$, Id buy it and stick it somewhere until I moved.

[XXXNoahXXX]

Since I am a student, I don't really have an income beyond loan and scholarship checks.

Therefore, whatever money I win from poker is mine to spend on dumb [censored]......unless I win a lot at a time and then I pay off my credit cards. Of course I could pay off a little here and there without these big scores, but thats no fun.

I figure, I'm making like $0 now, but in a few years I could be making 6 figures, so whats the point in stressing about paying off a few K now when I can just wait and pay it off in a month then.

Also, despite being in debt for like 10k to credit cards and more than that for college/law school, I have taken two trips to Europe, one to Cali, one to St. Maarten, and bunch of random trips here and there. Of course the sensible thing to do would be pay off debt, but again I figure I'd rather spend money now and enjoy my youth and pay for it later.

I wish there was somehow to get just a random loan to live off of, because if it wasn't for wanting to start a family some time in the future, I wish I could "retire" for ten years now.

How much better would it be to retire from 20-30 and then 75-85, instead of 65-85? Unfortunately, this isn't the case, so the least I can do is take a few trips with family and friends and enjoy life now.

Also, even if I ended up at some huge firm making $150k+ in a few years, I wouldn't all of sudden live some lavish lifestyle. I live with my gf in a nice studio now, and I'd either want to stay here or maybe just get a nice little 1br or something. I want to pay off my debt as soon as possible, allowing me the most freedom for job choice, etc.

[lapoker17]

i have always lived by "easy come easy go". certainly not the smartest way, but i have no regrets as my life has been fun.

[rudolphf]

easy come easy go for me aswell, although I am changing, after 3 years of being a winning but always broke player Ive finally decided to take br management seriously, that said outside of my br, once I have rent paid and food on the table Ill spend spend spend.

[Kneel B4 Zod]

I put a value on everything. I hate buying a $15 meal when a better one could cost $10 (which is often). I hate buying a $50 meal when a better one could cost $35 (ditto). I'd rather go buy a sweet $8 hamburger than an ok steak for $16, but I love expensive steaks as much as the next guy.

I never ever ever buy anything at retail price, just b/c I know it's never "worth it" b/c I can usually wait for a sale.

I'm pretty careful at assesing "luxury" items, b/c sometimes they are worth it, sometimes you are just buying a label or coolness or whatever (and that is fine sometimes, but I'll still never pay retail price for that coolness).

the above rules go for all kinds of my spending. like a car, for instance, I plan on buying a demo car from a dealer b/c that seems to be the sweet spot of the value curve. also I will buy a Toyota or Honda, b/c those cars are the best deals I think.

[KJS]

[ QUOTE ]
I don't care about the actual money, and caring about the source of the money seems kind of stupid (no offense).

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None taken. To explain, I think this approach has been my mental way of saying "go ahead and treat yourself". Something I can afford to do anyway but don't for whatever reason (leftover thriftiness from being poor?). So when I get a windfall of some kind I think "I didn't have this money yesterday so who cares if I don't have it tomorrow, let's go spend it." These are the games I play. Just trying to suss out if others do the same.

KJS

[KJS]

[ QUOTE ]
I put a value on everything. I hate buying a $15 meal when a better one could cost $10 (which is often). I hate buying a $50 meal when a better one could cost $35 (ditto). I'd rather go buy a sweet $8 hamburger than an ok steak for $16, but I love expensive steaks as much as the next guy.

[/ QUOTE ]

I do this too. I think it is the main reason why I can never truly get into high end luxury food and drink. Because I cannot calculate utility on any scale relative to price, since a $100 bottle of wine, IMO, can never be proven to be twice as good as a $50 bottle or 10X as good as a $10 bottle. When I do wade into the realm of things like fine dining/fine wine/find scotch I just end up thinking "that was not worth it because I could have had 5 of these other pretty acceptable alternatives for the same price." I often wonder if this is a function of my taste not being developed, my ability to pay, or both. That is why as I become more able to pay I keep revisiting these types of questions.

KJS

[haakee]

[ QUOTE ]
I also have what I call the 90% rule of money. I have decided over the course of my life that I cannot logically define the utility I gain from 10% of my net worth. Meaning, if I woke up the next day with only 90% of the money I have now, I am not sure this situation would affect my emotions negatively. I just don't think I would care that much. Therefore, if I find an opportunity to do something or buy something that costs less than 10% of my net worth and I think I will derive some measurable positive utility from, I will get it. Not always but very often.

[/ QUOTE ]

Wow, I guess that works better if your income/net worth ratio is high since your net worth is easily replenishable. I can't imagine thinkintg this way. What prevents you from burning 10% of your money on junk every day?

[ QUOTE ]
I also get a lot of sideways glaces from friends because I treat money differently depending on the source from which it came. If I win big at poker some night, I am pretty likely to take the wife out for a nice dinner or buy a new toy. Or I went without a new couch for years until I got an inheritance from a death in the family, despite having money for that couch in savings. Friends counter with the approach that it is all one big pile of your money, who cares where it came from. They say every decision to spend should be based only on the price, value and utility of what you are getting.

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This is called mental accounting. Most people do it to some extent or another even though it's illogical.

[mmbt0ne]

I've been wanting to buy a camera and or an mp3 player for about 6 months now. I just can't bring myself to spend the $250 on it.

I think my limit is anything over $100 for anything that isn't vital.