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Having more money usually results in no more than a higher Quality of Life (QoL.) It doesn’t necessarily mean you’ll suddenly begin forming new habits because of this big change in your life.

Our hobbies and things we buy are directly correlated to our budget. We implicitly raise our standers of quality and how we perceive purchases. If hiring somebody to fix your shower head will cost $50, and you make $50 an hour, that means you’re spending only $50 vs the 3-4 hour DIY job you’re thinking about to save money. 3-4 hours to do something means the cost (in work hours) comes out to $150-200 and probably low quality work.

People who overspend when they are rich are people who likely overspent and gotten into debt before coming across their fortune. Here’s an example: Spending $300/night on a hotel isn’t that big of a deal to somebody who makes $1000 a day. If that person is making $30,000 a month, $300 to them is only 1% of their monthly income. 1% of $4100/month – a common middle class monthly income (~$50k/year) – is $41. That doesn’t sound absurd. In fact, we will probably opt to spend much more if we feel this is a one time thing, or “we’re on vacation so we might as well stay somewhere nice.”

There’s no question that buying in bulk means you’re paying (much) less per individual unit, but in the long run does it save you money? The obvious answer is yes – how can it not? Instead of buying 1 train card for $4 everyday for 30 days (total $120), you would save $40 if you buy an $80 30 day unlimited card. In fact, you would likely save more because on some days (maybe weekends) you might use the train multiple times.

With metrocards, or anything you purchase on a regular basis that you can sit down and calculate a near exact cost of (cable bill, monthly memberships, etc), buying in bulk is a no-brainer. However, things you consume or use up, like gas or food, likely end up costing more when bought in bulk.

This happens if you don’t have a system for how you plan on using what you bought over an extended period. Instead of buying one Twinkie a day, you might think you’re saving $20 buying a big monthly supply (monthly supply being 31 Twinkies, for example). Without any form of control or restriction placed on the Twinkies, it’s likely you will now just end up eating more than one Twinkie per day. You might finish the Twinkies in a week instead of a month, and then probably either get sick of them and quit buying them for a week or two, and then resuming the cycle, or resuming it right away. Food isn’t the only thing we can abuse…

With a full tank in the car, I’m much more likely to speed or drive aggressively. With multiple bags of cat food in storage, I would probably take out scoops without caring much about losing any bits of food. I.e., some bits fell on the floor, or I put too much and need to throw out the old bits.

This also happens with money. If you have $100 in your bank account, you’re much less likely to charge small purchases, and become very vigilant about what you’re buying. With $3,500 in your bank account, this self monitoring is inhibited because suddenly, the loss is insignificant relative to how much you have in the bank. This is illogical. Saving $1 is saving $1,whether you have $2 in the bank or $2,000.

This doesn’t mean you shouldn’t buy in bulk. Buying in bulk is an excellent way to save money, but also requires that you micromanage your supply.

Posted in Bad Habits, Money, self-awareness at June 8th, 2009. No Comments.