Getting a bargain is a great feeling, isn’t it? In fact, I know some people who flat out refuse to buy anything at retail price. (And that’s not a bad goal, as far as it goes.) But there’s a danger — I think the cartoon says it better than I ever could:
Madison Avenue knows how we think, doesn’t it? We’re so wrapped up in how much we’re saving, we forget how much we’re spending in the first place. And it’s not just retail: Discover is fond of sending offers for e.g. $500 cash back if you spend $3000 on their card every month for six months. American Express Blue Cash used to have a little gauge on their site that would show you how close you were — and how much more you would need to spend! — in order to make your cash-back goal.
The worst part: sometimes we do it to ourselves with almost no encouragement. For example, we hate to pay taxes — so we hold on to risky stock from our employer until it becomes a qualifying disposition, or we refuse to sell a well-performing stock for fear of capital gains (or alternately sell a temporarily underperforming one to lock in capital losses!). Now, sometimes this is the wise choice…but all too often, we make the decision in favor of “less tax” without giving the matter enough thought.
Of course, it’s not that humans are stupid — it’s that cognitive bias can often turn us into our own worst enemy. So what’s a poor, irrational human to do? To start:
- First and foremost: stick to your budget in the face of sales. The envelope method makes this ridiculously easy — when you see a sale at Nordstrom’s or Fry’s, look in your envelope. If you have the money, great! Now you really can buy a little extra with the money you’re saving! If not, well, there will be other sales on other days. Either way, you can rest easy in the knowledge that you’re not saving yourself broke.
- Think about money in absolute terms. Don’t think about how much you’re saving — think about how much you’re spending. When looking at a tax decision, treat the money you save in taxes as equal in importance to e.g. the money you make by selling that stock.
- If you like bargain hunting, save up for seasonal sales. Lifehacker has a guide on when to buy anything — check it out!
- Learn to negotiate — it’s like creating your own, personal “sale” on the spot!