My mom was (and still is) a bargain hunter. She made a hobby out of shopping the bargain racks and clearance bins, trying to get the biggest discount she could. Even better if she could then talk the salesperson into taking off an additional 5% for a loose thread or missing product manual.
Like I said, it was a hobby of hers, so in that sense it was cheap entertainment. But it resulted in her bringing home a lot of stuff she really didn’t need. A familiar scene in the house on a Saturday would have her coming home from Sears with a couple bags full of clothes. The best part would be when she’d show my dad a blouse that was $50 originally, marked down to $20, and then she got another 40% off so it was only $12. My dad would say, “I could have saved you $12.”
My mom had fallen into a common trap–the allure of the bargain was so strong that it became irrelevant whether the discounted item was something she really needed or even wanted in the first place. I’ve found myself doing the same thing, contemplating a deal that was too good to be true before I realized that I would be just as happy walking away and spending $0. Stores capitalize on this behavior, which is why you’ll see boxes of facial tissues on an endcap in a store with a big “5 for $10” sign, for example–even if the regular price of the tissues is $1.75/box, when it looks like they’re on sale people will buy them, and will buy them in the suggested quantity.
Some other personal finance fallacies:
- Failing to consider an item’s useful life. Surprise, surprise: Mom had a habit of buying low-quality goods without thinking about whether this was the best bargain in the long run. I remember that we would go through a $10 toaster every few months. Had she instead paid $50 or even $100 for a high-end toaster, she would have come out ahead financially after a year or two. Buy nice or buy twice!
- (This also holds true for items that you may tire of. You can buy the $200 wristwatch you really have your heart set on and will gladly keep forever, or settle for the $50 watch that you’ll want to replace because you just don’t like it.)
- Giving too much weight to sunk costs. If you’ve already paid for something, you are not getting that money back, so there’s no sense going down with the ship. Here’s an example: a few months after I bought a brand-new car (okay, probably not the best choice financially), I got an unexpected job offer in Chicago. I moved, and realized that I didn’t need any kind of car in Chicago, much less a brand-new one that was just going to get dinged up from parking it on the street. But the car was worth far less than what I owed on it. As painful as it was to do, I sold the car, paying several thousand dollars out of pocket for the privilege. My reasoning? I owed the loan balance whether I kept the car or not. By selling the car, I cut my losses.
- Failing to consider intrinsic value. This is a corollary to the “Look, it was only $12!” fallacy. Something with an artificially high mark-up may not be a bargain even at 75% off. Consider whether it would still look like a bargain if the tag itself said “Regular price: $25.” Keep in mind that brand names don’t always mean quality. Comparison shopping is important here: maybe a travel website is offering its usual $700 air + car + hotel package for only $500 next weekend; that’s a good sign that all travel is discounted and you may be able to put together your own package for less than $500.