1 post tagged “saving”

Since people keep asking me about this little list, let me note it here.  It concerns a view I have distilled over some time in regards to what is to be considered expensive.  My personality being what it is, I have gone through periods of severe austerity as well as wanton profligacy with equal conviction.  There was a time when I bought only Charles Tyrwhitt shirts, leased only brand-new cars, and wouldn't dream of moving into a place without granite countertops.  There was also a time when I bought a used Hyundai after haggling the price down below the state-proscribed minimum for tax purposes, lived in a dilapidated house in a dangerous neighborhood two hours away from work by public transit, and would not buy any clothes priced above $20.  Through both, I could argue so convincingly that my actions were logical and advantageous that other people readily believed me.

The argument for indulgence was, predictably, a combination of you-get-what-you-pay-for and life's-too-short, while the argument for austerity was that in the long run, saving brings more satisfaction than spending, whose delights are unreliable and tend to wear off.  Both arguments seem valid and compelling, yet they send opposite messages for one's lifestyle.  It is interesting to confront them and dig deeper, particularly after experiencing first-hand the effects of abiding by them for a while.  This is exactly what I found myself doing over time.

My conclusion is that there are subtleties to both arguments that, on the one hand, dilute their messages but, on the other, allow them to be combined into a coherent whole.  I didn't get what I paid for every single time.  Even when I did, I sometimes concluded that what I got was not exactly what I wanted.  And depriving myself of the seemingly wasteful pleasures of impulse spending caused a gradual decline of creativity and kindness, two traits essential to human happiness.  When I kept at it long enough, I became a dull, dour miser without even realizing it.  My relationships suffered, I failed to see opportunities around me, and I inflicted unnecessary pain on myself.

These days I seem to have found the happy medium by combining the truthful parts of the two philosophies.  I am not afraid of spending money and sometimes spend a lot, but only when I am sure that it is necessary and will make me happy for more than a day.  I try never to overpay, having devised a specific definition of what that means.  This definition is what I referred to in the first paragraph and the essence of this post.  Here, then, are the three ways to overpay:

1. Simple arbitrage: you could have paid less for the exact same thing.  The emphasis is on sameness, which includes not just what you acquired but also all the intangibles like convenience and dignity of the transaction.  For example, you buy a shirt at Saks for $200 and then notice the same shirt at Nordstrom across the street for $150.  Let us assume that the Nordstrom salespeople are just as helpful as Saks', that the exchange policy is exactly the same, and so on.  The experience would have been substantially identical in all respects that matter to you, but you could have saved $50 at the end.  Instead, you effectively burned $50 in an ashtray.
2. Buying a Ferrari when a BMW would do: you pay a high (though fair) price, but the extra cost doesn't justify the extra pleasure.  Different people have different preferences, and they don't appreciate the same things equally.  But things cost the same for everyone, so it is possible to pay more and get more, yet not enjoy it more.  It is difficult to provide a universal example of this, since each reader will value things differently.  Still, let me try this one: imagine making a round trip somewhere and having a choice between flying an airline's first class and flying in a private jet.  The private-jet option is $10,000 more expensive, though you actually have that much money to spend.  So you take the private jet there, but on the way back you take the first class.  Upon return, you think to yourself that, although the private jet was more luxurious, comfortable, and convenient, you were quite satisfied with the first class, too.  In retrospect, you wish you hadn't spent the extra ten grand on the private jet because you don't feel you got ten-grand's worth of extra value, and you could have put that money to a different use.  You overpaid not because you could have gotten the same for less money but because you didn't need what you bought. (Thanks to my friend Spiro for coining the pithy Ferrari analogy.)
3. Spending money you don't have: you pay a fair price and enjoy what you got, but you couldn't really afford it.  Even when you do your homework, finding the lowest possible price and ensuring you got every cent's worth according to your personal preferences, you could still overpay if the price is higher than your budget.  This kind of behavior leads to indebtedness and financial distress that can quickly overcome all the joy derived from spending.  A classic example is when people buy a house too expensive for their income level.  It may be a great value for the money and still cause bankruptcy.  I find that this kind of overpayment usually happens when I hang out with the wrong people.  When I see those around me buying nice and useful things at bargain prices, it's easy to forget to ask myself whether I can afford those prices at all.

Putting these rules into words has helped me make better decisions and avoid the dangerous extremes I was given to in the past.  I doubt, however, that I could have divined the rules before going through all the experiences I mentioned.  Sometimes you have to make your mistakes so you can learn from them.