Nobody is 100% logical all the time, as well have our own biases and inconsistencies in how we view things. This includes decisions we make on how to spend money.
There are quite a few instances where we spend money on things we want, instead of things we need. Or, in other cases, we simply overspend on some needs and underspend on others. It seems like we are good at convincing ourselves that certain expenses are more important than others, when in reality they aren’t.
Here are 3 paradoxes in financial decision-making, situations that many take as normal but might merit further consideration:
Spending More Time and Energy on Buying a Car Versus Buying a Mattress
Yeah, I know this might sound a little odd to read. But think about it: we spend (or should spend) about 8 hours out of every 24 on a mattress, sound asleep. That is 1/3 of our life! We sleep daily, and it’s absolutely required for life.
So why don’t we spend more time prioritizing getting a good quality mattress that will allow us to sleep comfortably and be good for our back? Instead, we focus on other things, such as taking out long-term car loans to be in the vehicle of our dreams. You know, one that we convince ourselves we “need” or “deserve”.
A person with a really long commute might be in a car 3 hours a day. Most people are in their cars for far less time per day. But of course we sleep more than that. Considering the importance of sleep, and even the link between sleep and wealth, it make sense to invest in making sure we sleep well versus looking stylish when driving. That brand name doesn’t mean much in the quality of our daily lives.
It’s interesting how we spend a disproportionate amount of time on something less important. Kind of like a reversal of the usual application of the pareto principle and money!
Buying Something Because It’s a Great Deal Even Though It’s Not Needed
I’m sure I’ve done this before, and it doesn’t make sense. In fact, I recently came close to doing exactly this at a recent trip to the grocery store.
There was a clearance section, and I immediately gravitated toward it to take a look. There was a hodgepodge of items, and scanned to find a few that seemed interesting. The first thing I did was check the expiration dates Once I realized that wasn’t an issue, I got intrigued by a few items. Then I stopped and realized: did I really need to buy a bag of pre-cooked lentils, considering I never eat those at home? Did I really need to buy that wasabi that was drastically marked down, when I don’t eat sushi at home (just outside)? Was that tomato soup marked down to $1 really needed?
Sure, those were great deals, but I didn’t need them. Thankfully I didn’t make any purchases. But you just know that someone bought some of those things simply because they were on sale and seemed like a good deal.
Even if something is normally on sale for $10, but you find it for $2, it’s only worth it’s something you would have considered buying in the first place. Otherwise, it’s something that’s 80% off and a waste of your money!
Spending Tons of Money on a Dream Wedding Instead of Saving for the Future
There will probably be many who disagree with this one, and that’s fine. I don’t regret spending money on wedding expenses, so perhaps there might be some hypocrisy in what I’m going to say.
Here it is: there is no reason to prioritize spending tons of money on a dream wedding when you don’t have much money to begin with. I came across a couple fairly recently who were taking out loans to finance a wedding. Almost as if, the expenses related to the wedding were a required part of life that simply needed to be funded.
Let’s say a couple is just starting out, and has $20,000 in savings between them. However, a wedding they would be thrilled with would cost $30,000. Some people might burn through the $20,000 and get help from parents or even take out a loan for the other $10,000.
Why not just forget the $30,000 wedding, and have a more modest affair for something like $10,000? This way, at least you can start life together on solid financial footing without being broke or in debt. If people are already in debt with student or car loans, it makes even less sense to spend money on a wedding. The key is the marriage itself – that is what is truly important, not the pomp and circumstance of a grand show that’s only for one day. There are plenty of people out there who have had long-term, lifetime marriages that were truly great even though the spent next to nothing on a wedding ceremony or maybe didn’t even have one.
My Questions for You
What do you think of these 3 situations as being personal finance paradoxes?
Can you think of any others?