Magnitude Matters

Rand Spero

WHY DON’T WE SPEND our time and energy on financial issues that have the greatest impact? We’ll drive to a more distant gas station to save 10 cents a gallon, but fail to do all the maintenance needed to extend the life of our car. What lies behind this sort of behavior? The savings from getting the best price per gallon is concrete and immediate, while maintaining our car is long term and abstract. It’s simply easier to focus on the 10 cents.

I have a relative who stayed at a $500-a-night luxury hotel in downtown Boston. He emailed me to bring him water when I visited, because the hotel charges $5 per bottle. Yes, the hotel is pushing the envelope with its water bottle charge, but my relative claiming he won’t pay “on principle” seems like a stretch. Such “injustices” occur when we have concrete price expectations, while we happily tolerate other, much higher costs.

Deciding on a college is a huge investment of time and money. Yet as my family dashed from one campus visit to the next, I wondered if we were being good consumers. Were we prioritizing colleges based on which tour guide captured the interest of our daughter? Perhaps we needed to slow down and do more extensive research. When my daughter decided to apply early decision to a nearby university, we suggested she visit the school a second time. She spent a full day talking to students and sitting in on classes, and came back enthused. It proved to be a good fit.

The importance of considering the financial magnitude of a decision became apparent when I went house shopping with a friend. He was moving into town for work and wanted to get settled quickly. As we raced between showings, one desirable property stood out. There was a crowd at the open house and the broker indicated it would move fast. All bids would be accepted by Sunday evening and the winner would be announced the next day. My friend got caught up in the frenzy and wanted to know what bid might be needed “to win it.”

It struck me as amusing that we had spent just 45 minutes looking at the desired house for sale. I asked my friend how much time he would spend looking at a high-priced sweater. He proudly indicated that he was a bargain shopper. My friend added that, if he were going to pay a lot for an item of clothing, it had better be worth it. Yet soon he could be obligated to spend hundreds of thousands of dollars for a house, initiating this decision after spending less than an hour.

Want to make better purchasing decisions? Try asking these five questions:

  1. What dollar amount are you actually spending or saving?
  2. Are you sidetracked by focusing on low-cost items that are more easily understood?
  3. Do you cite “principle” to defend fretting over small expenditures?
  4. On big ticket items, have you established clear criteria before purchasing?
  5. Have you allocated time and energy that’s appropriate, given the financial magnitude of a decision?

Rand Spero is president of Street Smart Financial, a fee-only financial planning firm in Lexington, Massachusetts. His previous articles include Bearing GiftsAdmission of Guilt and Life Support. Rand has taught personal finance and strategic planning at the Tufts University Osher Institute, Northeastern University’s Graduate School of Management and Massachusetts General Hospital.

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Steve Spinella
Steve Spinella
1 year ago

I find it interesting that two of the three previous comments focus on the stories rather than the message. I’m trying to think about how my wife might respond. I think she might say that while the big decisions matter the most, the small decisions represent the everyday way of life which ultimately carries the day. She might be right. Jesus once told a parable about management like that.

Randy Starks
Randy Starks
1 year ago

My advice: Is to find a good local Community College, so that you can save some money, have the young adult live at home/work and take/get the core course finished, while reviewing what major to pursue. Then, review four-year campuses that cater to his/her major field of study. This will allow for less cost, more time to accumulate funds for college and focus the person on their major while learning how to make it through University study. Four-Year Campuses cost tons of money and unless the child gets major scholarships, and I don’t mean student loans, then Community College is the best way to start out that College-Post/Grad journey.

Mr Moderate
Mr Moderate
3 years ago

Well-said. Part of my New Year resolution is to match my values and priorities to my expenses. I found myself last year wasting time, energy and money on low-priority items and not putting the emphasis on priorities.

Roboticus Aquarius
Roboticus Aquarius
3 years ago

Ugh – we are going through the college thing now. It’s exciting and frightening, and heck, I’m just the parent. The college decisions are so hard because there really is no way to know in advance what school will work best for you. Then you have a very limited time to sort out all the information and experiences to derive a good fit. Luckily, with the right attitude, many colleges could well be appropriate.

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