Your Mental Approach to Spending

[gusmahler]

As for putting a value on everything, everybody has things they'll spend money on and things they hate spending on.

Take me and my wife. My wife will make lunch to prevent having to go to a restaurant if we're out for the day. She'll spend 2 hours cooking dinner so we don't have to go out for dinner. Yet, when we do go out, she has no problem going to a place that's $30/person. Yes, $30/person isn't expensive compared to high-end stuff, but I'd just as soon go to a deli and buy a $5 sandwich, or getting take out Chinese for $20 total.

I have co-workers who eat out for lunch everyday, yet buy their clothes at Wal-Mart. I have other co-workers who make their own lunch everyday, but buy their clothes at Neiman Marcus. To a person, every co-worker has said they think Blu-Ray is too expensive at $600/player, yet most of them drive $30k+ cars. I'll spend $300 for a pair of dress shoes, buy video games I don't need, yet I'd rather stay in a Motel 6 than spend $100+/night for a hotel.

[KJS]

[ QUOTE ]
[ 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 don't like things that much. They take a lot of maintenance, are hard to move and sometimes even cost you more money down the road (boat, for example). But if someone invited me on a trip every week, I would probably go if I had the time and it was 10%. But as the total amount shrinks by 10% the rule would probably not apply anymore. The rule works fine in its current incarnation because it only comes up about 2X/year. And in absolute terms I am not very rich so it is never an astronomical sum.

KJS

[bpc009]

[ QUOTE ]
[ 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.

[/ QUOTE ]

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

[/ QUOTE ]

KJS,

You are not alone, I do it as well... especially with regard to things. So for example, I can complete relate with your car example, and would do the same - if I were to ever buy a car.

And while I also do the same type of rationalizing with food and drink, I still spend quite a bit, in absolute terms, on them. I may think, "why should I spend $25 on that meal, when this one $15 is equally tasty and nutritious," and thus choose the $15 meal... not just that once, however, but several times a month. So in the end perhaps I spent more money going out for food that I would have had I just taken the occasional more expensive meal. Still, I consider the several hundred I spend each month on food and drink money well spent... and yet I can hardly imagine buying a $100 sweater, a flat screen tv, a new sofa, etc even though I could. I would only consider buying such a luxury if I came into some very unexpected money.

I much more keen to spend money on activities and traveling than things. But I still do some mental accounting here. For example, while I can't rationalize buying box seats for a game, I probably would buy them if I came into some unexpected money.

[NajdorfDefense]

It's all one big pile of money, 'cept for stuff like 401k and pension you can't actually touch [or w/o large penalty.]

[PITTM]

i think gusmahler's response is the most interesting. being someone with an economics degree i always end up obsessing about how everyone values things differently in the most detailed way possible.

The other day, i bought a new set of poker chips, they were $430 dollars. I thought this was a lot, but it was exactly what i want and i will never have to buy anything like this again and it probably only cost ~2% of my net worth. I have moved toward this side of value on much of my purchasing. I grew up with hippie parents who spent way too little on everything, got crappy products they had to keep replacing and faced tons of headaches. My mom would always buy us cheap [censored] spaulding shoes and stuff that would fall apart really quickly. At this point in my life, i really like buying products that are nice and will not need to be replaced with any great frequency over saving a few bucks. On the other hand, if i am staying somewhere, i will often try to stay at the cheapest hotel possible because i generally think one gains little value from a nicer hotel room as the price rises. However, I often will go to a nicer restaurant because i think i get better value as price rises for good food. These tradeoff's (value to you as price rises) really just vary based on tastes.

However, the more i think about it, since i have lots of disposable income, i just end up spending too much money on everything at this point. However, any product that i can get a better rate for the same product i will push quite hard to get it. For example, i wanted to start going to 24 hour fitness and when i called they said it would be 60 dollars a month, which seemed like way too much, so i tried to negotiate it down, but they refused. I found out that my friend, who is a paramedic, can add people on to his plan for 15 dollars, so now i pay 15 dollars for what most people are paying 35-60 dollars a month for. Things like that really annoy me if i was paying a lot more than others.

[guids]

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

[/ QUOTE ]

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

[/ QUOTE ]


I think this kind of thinking would lead to problems for me at least, I value every dollar that comes in as if I "earned" it. ESPECIALLY if you gamble for a living you cant really separate a windfall from earned money, because too often you would be using money that you didn't "earn" to blow on stuff you dont need, hence why I treat all incoming funds as earned income.

[KJS]

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

[/ QUOTE ]

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

[/ QUOTE ]


I think this kind of thinking would lead to problems for me at least, I value every dollar that comes in as if I "earned" it. ESPECIALLY if you gamble for a living you cant really separate a windfall from earned money, because too often you would be using money that you didn't "earn" to blow on stuff you dont need, hence why I treat all incoming funds as earned income.

[/ QUOTE ]

I would never do this if I gambled for a living. It is just a hobby for me. When I did play for my sole income I did not have this approach.

KJS

[KJS]

[ QUOTE ]
It's all one big pile of money, 'cept for stuff like 401k and pension you can't actually touch [or w/o large penalty.]

[/ QUOTE ]

You find a c-note on the ground. Are you more likely to spend it on a whim than a hundred you earned? I am. Insert "got it because someone died", "won it in a card game", etc.. for "found it on the ground" and you get my approach. Not totally logical I know but understandable I think.

KJS

[guids]

[ QUOTE ]
[ QUOTE ]
It's all one big pile of money, 'cept for stuff like 401k and pension you can't actually touch [or w/o large penalty.]

[/ QUOTE ]

You find a c-note on the ground. Are you more likely to spend it on a whim than a hundred you earned? I am. Insert "got it because someone died", "won it in a card game", etc.. for "found it on the ground" and you get my approach. Not totally logical I know but understandable I think.

KJS

[/ QUOTE ]


Very understandable, and I used to think like you to. This is one of the many lessons abotu money Ive taken away from gambling, I dont think that it is "good" to think like this.

[z28dreams]

I like this post.

For me, I consider myself quite frugal - but not cheap. That is to say, if spending on myself, I almost never go luxury or splurge. I pretty much try to save everything I make.

With friends, however, I'm happy to buy a round, cook them a dinner, or bring by random goofy gifts.

I think I got my thriftiness from my parents who raises 4 children on a moderate income. We were always well taken care of, but never had the money to splurge on fancy dinners, etc.

I -hate- shopping. I have a really hard time buying clothes (esp since nice shirts are usually $40+). I do enjoy shopping for value though. Fatwallet.com is my best friend.

Another interesting note - I used to feel that by buying very nice items they would last for a long time. Because technology is changing so fast now though, I no longer believe this. For gadgets, I tend to by stuff that is just slightly outdated for a huge discount. (When the parents wanted an LCD TV for christmas, we went with a 720p for $1000 instead of getting 1080p for $2000).

I have found that as i've made more money through the years I've been spending a bit more. Oddly, it's on all the wrong things - food, booze, etc.