Spending Tip: Don’t

Richard Quinn

I’VE DECIDED TO SELL some of my investments and buy a Bentley. The one I admire would cost about $300,000, including taxes and fees.

Just kidding. Besides, I couldn’t face my four children after such an indecent splurge, knowing that they’re dealing with high-deductible health plans, saving for college and socking away money for retirement—just like millions of other Americans.

While that Bentley purchase would be possible in theory, it would substantially reduce my assets, plus the insurance, maintenance and gas would mean giving up more frivolous things—such as eating. Indeed, a major purchase is rarely just a purchase. There’s usually some other expense that goes with it: maintenance, repairs, interest payments, insurance, opportunity cost or—who knows?—all of the above. That’s why, before any significant purchase, we ought to consider the long-term consequences.

That’s no fun, of course.

How many times have you heard the phrases, “It’s only money” and “You only live once”? I laugh when I watch a game show and the host asks, “What will you do if you win the $10,000?” Last night, the answer was, “I always wanted to go to Australia and New Zealand, and I’m going to take my family for a month or two.” Are they planning to swim both ways?

I have yet to hear a contestant say, “I’m going to pay off my credit cards” or “I think I’ll contribute to my IRA.” There was little chance of him winning the $10,000, anyway. To the question, “What war did the Boston Tea Party precede,” he answered, “World War II.” Mensa candidate, he wasn’t.

It doesn’t take a genius to know that spur-of-the-moment, emotionally driven buying can be risky. And it doesn’t have to be Bentley-level spending, either. Vacations are easily rationalized and put on a credit card. Such splurges seem almost reasonable when they’re couched in terms such as “who doesn’t deserve a break” or “who wants to disappoint their family,” or framed as the desire for “quality time” with loved ones.

I’ll concede that I’m an emotional buyer at the supermarket, especially when I don’t want to cook. You can spend a lot of dollars wandering the supermarket aisles. I recently bought store-prepared chicken and roast potatoes that cost $24—just because I was lazy.

Not buying isn’t easy, and resistance is sometimes futile. My wife and I used to travel through Europe with another couple. We would be in Paris, Madrid and London, with all these amazing things to see. The other couple went shopping rather than visit museums, historic sites or the London Eye, the enormous ferris wheel alongside the River Thames. They’re in their 80s and still working.

Emotions can be powerful. While on a trip to Spain, we wandered into a Lladro store. There was a porcelain figure of Don Quixote. Not a big deal, except our first date was to see Man of La Mancha, our wedding song was The Impossible Dream and we were at that moment on a romantic vacation in Spain. What could we do except purchase it? Besides, it was only a few hundred Euros—not real money.

As British philosopher Bertrand Russell wryly noted, “It has been said that man is a rational animal. All my life I have been searching for evidence which could support this.”

Since we know not buying is rarely our first inclination, here are four strategies that might help:

  • Look and dream, but then walk away before you buy. If you’re serious, you’ll go back. Don’t fall into the “it may not be there later” trap.
  • Think about past purchases of nice-to-have things. Do you even know where they are? Keep in mind your kids won’t want them when you’re gone.
  • Have the cash before you buy, or know exactly where the cash will come from when the credit card bill arrives. While that doesn’t make a purchase a rational choice, at least it can help keep you out of financial trouble.
  • Use your phone to do a future value calculation of the money you’re proposing to spend. How much would you have if, instead, you invested the money for retirement? For extra credit, convert the sum into a stream of potential retirement income using the 4% rule.

Richard Quinn blogs at Before retiring in 2010, Dick was a compensation and benefits executive. Follow him on Twitter @QuinnsComments and check out his earlier articles.

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