One mistake I see people make a lot is to think of their money as a way to get particular products or services they want. I want to buy this particular television because it has the cool new feature thingy and I just can’t live without it. A very common mistake — one I make all too often myself.
Why is this a mistake? Isn’t it great to have a particular goal and to work towards it?
It certainly is great to have a particular goal, and sometimes focusing on that goal with a specific picture or product in your mind can help get you there. For instance, (Wesabe advisor) J.D. Roth has a great story about saving for a Mini Cooper that shows how this can work — in his case, spectacularly. The very first big purchase I made as a kid (a Vectrex game machine, for the record) worked the same way for me — keeping that thing in mind kept me saving.
But in many other cases, fixating on a particular product can bring out all of your worst financial habits. This is, in fact, exactly what marketing and product catalogs and television ads and promotions are all designed to do: to get you to want to spend more because you believe it will bring you something special. I was flipping through the Design Within Reach catalog today and saw a pair of water hose spray nozzles for $70.00. Wow, I thought, “Within Reach” of whom? Why would I ever need to spend $70.00 on spray nozzles, no matter how well-designed? The catalog told a story about elegance and efficiency and clean design, and by absorbing that story, one might be tempted to spend $70.00 on a product that sells for $5.00 at the local hardware store. (For the record, I was not tempted — in this case, at least.)
Some of your needs or wants will always have a newer, better-seeming product available. Shaving products are hilarious this way: since shaving is a pain and many people hate it, every year a new product comes out with more and more blades or lubricants or whatever else they can think to add. (Check out How Many Razor Blades Do I Really Need? for exhaustive research on this topic.) Each one costs more, and maybe each is a little better than the last. Should you just upgrade every year, and spend more and more and more shaving as time goes by?
A great way to budget is to flip around your way of thinking. If you fixate on a product, the only financial question is how to get the best price for that product. If you fixate on the need, instead, you can ask, what are the range of products available to meet this need? Would a low-end or mid-range purchase meet my needs in this case? If so, great! You just saved money, probably a lot more than you could save by shopping for the best price on a high-end purchase.
I saved a ton of money with this way of thinking when I went to buy a grill for our back yard. I started out fixating on a high-end Weber gas grill I had seen at a friend’s house — available on Amazon for a mere $700.00 (gas not included). Think how quickly I could be grilling! How much space I would have to grill! Maybe I could find a really good used one for $500.00, if I spent a bunch of time and got lucky. But then I stepped back and thought, what do I really need, here? I want to be able to cook over an open fire in the back yard. Do I really need that much space, or that much speed? I wound up buying the classic Weber “One-Touch” charcoal grill for $70.00 — a 90% savings. (Given how durable they are, I probably could have gotten one on Craig’s List for nearly nothing.) It’s perfectly good enough for my needs — any time I want to grill, an extra half hour heating the grill while I prep the ingredients is no big deal.
Buying a high-end product can be fun and can be rewarding and a motivational goal. Sometimes it can be worth it. Just don’t tell yourself it’s anything else, and try to make lust for a particular product be the exception, not the rule. If you focus on the needs you want to fulfill with your money, you’ll find you have a much wider range of choices, and much greater opportunities to save.