Are You Spending 15% More Than You Want?

Many of us, myself included, might be living 10-15% above where we actually want to, and paying dearly for it. After all, instead of spending it on useless upgrades, couldn’t you use 15% of your income (we’re talking about thousands of dollars here) for something more dear to your heart?

Let’s take a closer look at how little expenses can really add up and the disaster that is human psychology.

What I Want: Let’s call it “X”

small-house This is a simple concept to understand. We are good at figuring out our own needs and wants if we don’t let outside influences mess with them too much. For example:

  • When I go to a fast food restaurant, I know I like a medium-sized drink.
  • I prefer to live in about 1,200 square feet of living space with two bedrooms. That’s a good size for our current family.
  • I know I need about $100,000 of auto insurance coverage to protect myself from getting sued.
  • I like to watch basic cable and would rarely watch premium movie channels (we have Netflix).
  • I want basic and reliable phone service where I’m able to make calls and get a few text messages every month.
  • When I go out to eat, I know I rarely need to consume anything beyond the basic entrée (and usually, only 1/2 of that) to feel satisfied.

What I’m Convinced to Get: X+15%

large-house The power of the marketing/sales machine in undeniable. Look at some concrete examples of this principle at work using the examples I already mentioned:

  • When I go to the fast-food restaurant, I’m offered a large-size drink for “only 10 cents more.” It seems like such a better value!
  • When shopping for homes or rentals, I’m offered homes slightly above my preferred size or quality for “only a small premium.” Given the choice between paying $800 a month for a 1,200 square foot two-bedroom place, and only $100 more for a three-bedroom deal, which would you pick (even if you didn’t need it)?
  • When I’m pricing out new car insurance, many websites now show instant comparisons of various coverage options. Why would I pick $100,000 in coverage when $300,000 is only $10 more per month?
  • Basic cable costs about $60 per month, but to get HBO is only an extra $5. The small cost seems so enticing.
  • A simple phone plan runs $40 in my area, but why not add a texting plan for a small fee? What about an Internet package? Once that’s your new baseline, would you like to upgrade to a Blackberry, too?
  • The steak and potatoes were awesome, but why not finish off the meal with some flair by getting this well-photographed dessert for only $7 more?

See what I mean about psychology? 😉

The End Result

When all is said and done, we’re not really getting what we want—we’re leading a lifestyle inflated by sleek marketing tricks and human psychology at a level where we think we’re getting some awesome deals.

The cost, though, is staggering when you actually add it up. If you have $30,000 a year in expenses, $5,000 of that might be stuff you don’t really want! Spend more, and chances are that an even greater percentage goes to “fluff!”

Resetting the Scale

Now you know the problem, but how do we stop subconscious deal-chasing? Sadly, I know of only one way to counteract these deeply engrained habits:

Sheer Willpower

Establish what it is that you actually want and make certain that you know it inside and out. The more specific you are with anything (home preferences, entertainment expectations, etc.), the better the chance of making through a sales or marketing onslaught.

Once you get there, though, the only way to make sure your planning aligns with your execution are those two bold letters above. Good luck!

Photos by purpleslog, Pink Moose, and G & A Sattler

6 thoughts on “Are You Spending 15% More Than You Want?

  1. Setting your price beforehand. What’s even more important is setting reasonable expectations for what you want and how much of it you want.

    Buying more than you need is one of the biggest wastes of money.

  2. I love this post. I never even gave the overall impact of being upsold like that a thought before. And you’re right, willpower and keeping the things we actually set out to buy firmly in mind is exactly what it takes to avoid those extras.

    It’s kind of funny, even the people selling to us are usually convinced it’s a great deal. I just drink water, and I can’t eat most fries, so when I go to fast food places of course all I order is the entree. The order taker usually has to be told a couple of times that no, I don’t want the combo. Sometimes I even have to explain that it’s NOT a deal for me to pay “just a little bit more” for food I’m not going to eat and don’t want.

    1. Our local supermarket runs periodic deals on their lunch sandwiches. Where a regular turkey sub might cost $6 (combo is $8 as an example), during this deal the combo costs $6.

      I have to remind myself that I don’t like chips and I probably shouldn’t be having that soda. The order-takers always look at me weird because I’m passing up “free” food. But why bother when I’m just going to throw it away?

  3. I want to share a story I read about marketing:

    Back in the days of the soda shop, an owner could make 5 cents more per shake if an egg is added. The staff would ask “Would you like an egg?” and the customer would say “No.” After awhile, the owner realized he was asking the wrong question. So the staff started asking “1 egg or 2?” When given this choice, they would say “1, please.”

    So many times, we order of the menu, take only the phone and cable choices offered. We have to be the ones who say “No eggs, please. And deduct the cost of the egg.”

    1. Wow, what an interesting example!

      I’ve noticed this technique used online for companies like 37signals (for example, to get to their “free” version of BaseCamp, there’s a little tiny link below their giant paid options).

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