IAM1PERCENT recently put up an interesting post regarding 10 Examples of Wastes of Money which really got me thinking about costs and benefits of a range of items, from the cell phone in my pocket to the pool in my yard. What makes a decision to spend $2,500 on LASIK wasteful to him, but completely worth it to me when I had it done 8 years ago?
The answer could be analyzed in simple economic terms – is the incremental enjoyment of a more expensive choice worth the incremental cost of the item. As IAM1PERCENT points out, it’s often about what an individual values and prioritizes and is therefore a purely subjective point of view. Here are places that wasting $$ makes sense to me:
- Smartphones – I’m an Apple evangelist and feel that the premium you pay for the newest shiniest phone is valid. I have my phone with me all the time and use if for entertainment, news, communication and even on rare occasions, a phone call. iPhone’s do everything more simply and intuitively than the best other phones out there, many of which are really catching up but not there yet. So the $299 I paid for an iPhone 5 (I wouldn’t justify upgrading at a non-subsidized price) when you can get really cool phones for much less was worth it.
- But – I don’t use Apple PCs; my family and I use enough Windows-based software at home that the benefit (and learning curve) of a switch to Apple PCs just isn’t worth it. Windows PCs are fine for now (although Windows 8 is pretty bad).
- Vacations – I’ve fairly recently become a believer that a great location/resort makes a vacation more memorable. We take a couple of vacations a year. Staying on the property at Disney or taking the cruise on a massive new mega-liner is a substantively different experience than driving over to the park each day or cruising in an older boat. There is a premium for this but it’s worth it.
- But – Upgrading to the multi-room cabin or the penthouse suite doesn’t justify the premium. Given we are a family of 5, it gets harder to squeeze into one hotel room but the prices of suites or multiple rooms don’t justify the added benefit.
- Steaks – We grew up in a more modest life style and my parents were immigrants who grew up with much less. They always joked that they wanted to have a steak for dinner but when they finally could afford it regularly, doctors would tell them to cut back. While I don’t pretend to be an overly healthy eater, it seems pretty clear that less red meat makes sense. So when I do grill a steak, it’s worth it to me to spend the extra few dollars on a good piece of your favorite cut. When you don’t have something that often, splurge when you do.
- But – I enjoy wines but don’t appreciate fine wines. I’ve been fortunate enough to have some really expensive bottles of wine at the best restaurants. Even after a wine tasting class, I can’t really appreciate the difference between price classes of wines. I’ve had great $10 bottles as well as lousy ones. I’ve also had great $500 bottles as well as lousy ones. So if it’s a little hit or miss, I’d stick to a new $10 bottle and take my chances on whether I love it or not.
- New Cars – I get the logic and appreciate the numbers; new cars lose a significant fraction of their value the second you drive them off the lot. There is no disputing this fundamental point that from a strict $ perspective, buying a used car and selling the old one at a cash for cars site online makes sense. Similarly, I get that leasing is generally a bad move with a byzantine cost structure that makes it nearly impossible to figure out all the finance charges, fees at turn in, etc. and to understand whether it’s a good deal or not (or even compare deals). The best option financially speaking is to purchase a 2-3 year old car, maintain it meticulously and keep it for 10 years. I don’t do that.
- But – We have recently moved away from premium brand cars. A friend once described himself as a ‘point A to point B car guy’ and I completely agree. Today, a top of the line tricked out minivan costs 50% less than a family sized Lexus or Mercedes. The status that these brands convey isn’t worth it to me. Their reliability isn’t that much higher to justify the premium, maintenance costs are significantly higher and I’m fine with the internal luxury of a new top of the line Honda over a few year old Acura especially since I get a to replace it with the most up to date model often. Driving performance hasn’t been a factor in my car decisions for many years, and I get my tech and environmental satisfaction from a Prius (new of course).
- Pool – We dropped a bundle over the last 2 years on a pool, patio and pool house – about $300,000. Before beginning our project, we evaluated a bunch of alternatives that would have kept the project to a sane budget – type of pool and features; pool house, outdoor kitchen, fire pit, water slide or not; size and type of patio; etc. At the end of the day, it came out spectacularly and really created an outdoor living space that we enjoy with family and friends. From an investment perspective, it’s a money loser. For net worth purposes, I assumed it added less than 50% of its cost to the value of my house, and direct maintenance costs are fairly high. However, we love playing host every weekend, and I look forward to my house being the place for my kids to hang out with their friends (from a purely selfish perspective of keeping an eye on them). At least that is the thinking today, I’m told the joys of hosting fade considerably over time.
- But – We decided against buying a summer house because it just wouldn’t be utilized enough. The opportunity cost of investing there over other options didn’t sell me, for I could rotate weeks at various resorts for the place’s carrying costs and I didn’t believe I would enjoy the place renting it part of the time.
And a final thought on IAM1PERCENT’s article, while I agree with a couple of his examples of wasting money, I will continue to shop in Costco for another big screen super flat LED TV using my cell phone to check reviews for the right model, which I will bring home in a reliable new car, then hook up to my premium cable package and watch from across the room (without the need for contact lenses).