The cost of a bag of potato chips compared to a bag of potatoes
In my last post I discussed the idea of paying double for the things you buy: the first (and easiest) purchase is simply the thrill of getting the new thing, such as a book. The second purchase is the time it will take to fully master the item now in your possession (the hours necessary to read the entire book, the guitar lessons required so that you can appreciate the sounds from your newly crafted instrument, etc).
Another type of cost (besides the double purchase) that also sometimes falls under the radar is the convenience factor.
Money is often a negative art. What you don’t do can be more important than what you actively do.
How we make decisions around money is a complex cocktail of emotional, psychological, and even philosophical ingredients.
Spending extra money because something is convenient can be wonderful, because who doesn’t love instant gratification? But do we take the time to discover whether the extra money spent was worth it? Usually not. And that’s perfectly OK as long as we’re not planning for a FIRE* (*financial independence, retire early).
Of course we can’t spend three years building a home for ourselves from scratch when a building crew can do it in seven months. Well, we can, but it would involve an insane amount of preparation.
You can pay 10,000 rupiah ($.70 USD) for a coconut in Bali or pay 15,000 rupiah ($1.05 USD) for a fresh bottle of coconut water. That’s a 33% increase. The first requires a very sharp and large knife and the second requires a glass (or, you can just tip the bottle towards your mouth).
It all comes down to how we make our choices.
As Morgan Housel points out:
The typical American family is earning more than ever before. But for many it probably doesn’t feel like that – at least as much as it should – because all of the income gains and then some have been offset with higher spending.
Why do so many people spend more than they earn?
Could it be that we don’t calculate the true cost of the things we buy? The double costs, the convenience costs?
Your comments appreciated.
And now a few links: