Everyone likes to splurge. How someone splurges can actually tell you quite a bit about someone. For example, one person might consider getting Starbucks every morning a nice splurge, while someone else may consider splurging to be going out and buying a brand new Gucci handbag. These two are very different but not in the way that you might think.
Asking the Right Questions
There are a couple of questions I ask myself whenever I’m looking to make an expendable purchase. First, is this object a reusable good or a consumable? In other words, is this something I keep and use as I’d like, or is this something that I use and subsequently have to buy another if I’d like to use it again. In this example, the coffee is a consumable, while the handbag is a reusable good.
The next question I ask is as follows, is this something I will use occasionally or for daily use? Both of these can be answered differently depending on the person. Some people buy a coffee every day before work, while others treat themselves to Starbucks once in a while. The same goes for the handbag. Some people might use the Gucci handbag every day, while others might only use it on a night out.
Understanding the value of these two questions is what leads to good decision making when splurging. The object of highest value would be the one that is a reusable good that is used every day. The least valuable is the consumable good used every day. Here is why.
At Starbucks in my area, a Grande latte averages about five dollars. Day in and day out, it’s a hit among women who wake up a few minutes earlier each day, so they can grab their lattes before work. Most of these ladies work regular office jobs, Monday through Friday. After vacation time, they work about 250 days each year. That means they spend about 1250 dollars per year on coffee before work. Allow me to repeat that for emphasis.
They are spending 1250 dollars each year on coffee before they go to work.
You very well may be one of these people, and that’s alright. Just let me propose some alternatives for what you could do with that money.
Seeing the Big Picture
Take a wild shot in the dark at how much it would cost to get your hands on a full-size Gucci handbag. If you guessed 1250 dollars, you’d be right! The handbag is just an example. If Gucci isn’t your thing (as it isn’t mine as a 22-year-old male), you can very well think of plenty of things you’d like to have with a spare 1250 dollars lying around.
There’s more to this lesson than the old, find-out-how-much-you-would-save-if-you-didn’t-buy-coffee-every-morning trick. Let’s say you make a conscious choice to drink lots of water instead of coffee to stay healthy and hydrated every day so that you can finally have your own Gucci handbag.
Congratulations! I have great news! One year later, your 1250 handbag may not be in style amongst the ladies who frequent Saks 5th Avenue in Manhattan, but to the untrained eye, you are absolutely killing it. Your handbag doesn’t magically disintegrate, unlike the coffee. It still holds things.
By the way, it makes you look fabulous if I don’t say so myself.
Long Term Costs Vary from Prices Upfront
The handbag still holds value one year later. If you went to sell it, you’d get money for it. You wouldn’t get 1250 dollars for it. It’s last year’s design at that point and has your dead skin cells and perhaps some crumbs in it. Sorry to be graphic, but it’s true! It’s still a Gucci handbag though. It still commands a strong price. Let’s say it sells for 900 dollars one year later. Your final cost for having an in-style Gucci handbag for a whole year is 350 bucks. In translation, that’s 70 Grande lattes or just over 3 months of coffee. I think a lot of those ladies in Starbucks every day would give it up here and there if they knew it meant they could pull their wallets out of a nice Gucci bag when they did get their coffee on occasion.
There’s better news even still. You could make coffee yourself at home for about 75 cents per day, or $187.50 per year. If you decide that you can make do with a mint condition Gucci handbag from last year for that 900 dollars, you could have both and be $162.50 under budget from the original budget just for those lattes.
From Handbags and Lattes to Life
I would be remiss if I did not follow all of this up with some more sound financial advice. No, you probably shouldn’t be spending a fiverr on coffee every day. Just because you stop or start making it at home doesn’t mean that you’re all ready to go out and get yourself a nice designer handbag though.
If you have any kind of debt whatsoever, be it student loans, credit card debt, etc., pay all of that off first. You also want to make sure that you’re setting yourself up for a secure retirement as well. Nothing plagues the wealthy more than living a lavish lifestyle through their careers, only to end up eating off of paper plates in their old age. Even worse is when a middle-class person attempts to appear wealthy and ends up bankrupt while working and possibly providing for a family.
If you’re regularly contributing to a 401k and maybe you have a Roth IRA on the side that you throw some money in every once in a while, then when you find yourself with an extra 1250 dollars and you’ve been looking at Gucci handbags, a vacation, new furniture, or anything you’d like. I’ve got two words that you’ll love to hear and will love even more when you can act upon them while feeling secure and comfortable.