Why It's So Hard To Look At The Big Picture When Thinking About Money

 

Why do we splurge for some things, and decide that others are just too expensive, even when they cost the same?

 

One of my favorite web cartoons, The Oatmeal, has a very funny comic about how readily people will spend $300 or more on an iPhone, iPad or iPod and then decide that an app that costs 99 cents is too expensive. It's so funny because its so true.

 

 

 

It doesn't matter if you are out of work and looking for a job just to be able to pay rent for another month or if you are living very comfortably, we all tend to judge the value of things in a way that doesn't make much sense rationally. It happens to me all the time. I might decide to spend $50 or more on taking my daughter out to a movie and ice cream, while deciding that spending the same amount on a pair of shoes for her is too expensive right now. Has this every happened to you?

 

The problem is that when we are comparing one purchase to another, our minds try to compare the two items to each other. This is really hard to do when the choices are so different. If it is simply a matter of deciding which shirt to buy and comparing two shirts that are different and have different price tags, we can handle that easily.

 

When we are faced with two very different choices, we try to not make a choice and instead pick the one that is the most fun or that gives us the biggest immediate pleasure. This type of behavior can really make a dent on a budget.

 

Retailers know how hard it is for us to step back and make critical choices about how to spend money. In fact, a very common tactic is to price items relatively in order to drive up sales. Apple is a great example of this benchmark style pricing. For example, if you were looking to buy an iPad 2, these are your storage options and prices at the Apple store:

 

 

By setting a benchmark of $499, then offering the middle of the road model, customers don't think that paying just $200 more for triple the amount of storage is a bad deal. This benchmarking makes it much less likely that someone will ask why they should pay almost $700 for a device that has no real need. Granted, I love the iPad 2 and I could think of lots of things to do with it. However, I have never been trying to do something online and thought “If only I had a iPad 2, this would be so much easier.”.

 

In order to avoid this type of trap, it's important to take a step back and look at your money in a larger context. Instead of wondering if it is better to spend $599 on a 16 GB iPad 2 or to spend the extra money to get the 32 GB, ask yourself if the investment in the iPad 2 is worth giving up $700 from your budget.

 

When you think about the things you will have to give up in order to make a purchase, you are more likely to make decisions that will work out better for you in the long run, and be better for your budget. It can take some time to get into the habit of thinking about money from this perspective, but it's well worth the effort.

 

Have you found yourself in this type of situation? How do you overcome it? I would love to hear your thoughts in the comments.

 

 

By Melissa Kennedy- Melissa is a 9 year blog veteran and a freelance writer for RetailGigsBlog. Along with helping others find the job of their dreams, she enjoys computer geekery, raising a teenager, supporting her local library, writing about herself in the third person and working on her next novel.