Don’t Skimp on Pennies, Focus on Expensive Items Instead.
Thrift is not just about saving money, it is the need to use money rationally , to use it in the best possible way. It also means not wasting time. For maximum efficiency, focus on saving expensive purchases, not cheap ones.
In a recent article, Sendhil Mullainathan, author of Scarcity: Why Too Little Means So Much , explains that most consumers put in too much effort to save on cheap items and do not put in enough effort when it comes to expensive items that can really make a difference. Mullainathan writes:
Imagine this situation: you are buying headphones. The electronics store has the $ 50 model you want at a reasonable price. But the seller says, “You know that in our other branch this item is sold for $ 40.” It will take 30 minutes to drive to this store and you cannot buy headphones for this price online. Are you heading to a different branch?
Before answering, consider a slightly modified version of the same situation: instead of headphones, you buy speakers. You go to the same store and find the $ 400 model you want. Again, the price seems reasonable, but the seller says it is on sale at another location for $ 385. What are you doing now?
Research by Daniel Kahneman and Amos Tversky, psychologists whose work helped spawn the behavioral economics, shows that people are more likely to travel for $ 40 headphones than for $ 385 speakers.
In some ways, this seems like a smart decision, ”says Mullainathan. With headphones, you save 20% compared to 3.75% for speakers. Of course, the actual dollar amount is a different story altogether. You save $ 10 on headphones and $ 15 on speakers.
This is a simple example that confirms a more important point: our priorities for frugality as a consumer are somewhat confused. We brag about saving $ 50 on jeans while we easily overpay consistently in other areas, from our monthly bills to our investments:
Without much thought, we’ll choose a fund that charges an additional 0.25 percentage points instead of wasting time looking for a cheaper one. At first glance, this is reasonable. What is a quarter of a percent? But this seemingly tiny percentage difference can easily add up to thousands of dollars in lost money.
This is not to say that saving on cheap things is always a bad idea. Sometimes it’s easy enough to save a few dollars, so you can do it. However, it can be helpful to come up with some rules and guidelines on how to save money without wasting your time . To learn more about this concept, go to Mullainathan’s article at the link below.
How to pinch pennies in the right places “wiki useful The New York Times
Photo by Joseph Francis