What Eating the World’s Largest Lollipop Can Teach Us About Spending Money

August 02, 2012

Last week, my fellow Financial Finesse planner Michael Smith wrote a blog post titled “What the World’s Largest Lollipop Has to Do With Our Financial Problems” about how the “bigger is better” mindset can lead us down the path of debt. The problem is that a desire for growth and improvement in all areas of our life, including materially, is arguably ingrained in our culture, if not our very DNA. Don’t we always want to become more fit and healthy, more educated and knowledgeable, more liked and respected, more financially secure and yes, more materially comfortable?

There are a couple of ways to make these desires work for us rather than against us though. The first is to maintain a healthy balance. Concentrating too much in one area can be to the detriment of others. If we spend too much time playing sports and working out at the gym while we’re growing up, we may neglect our schoolwork. If we spend too much time reading and studying, we may not develop much of a social life. If we spend too much time partying, it could come at the expense of our career and financial goals. At the same time, we don’t want to focus so much on growing our net worth, that we never get to actually enjoy it.

The second is to realize that material happiness is only temporary. Some people see this as a reason to deprive themselves of material comforts but that’s not necessarily true. For example, when I get hungry and eat something, I’m temporarily satisfied. Yet, a few hours later, I’m hungry again. Does that mean my meal was a waste?

Yes, there is such a thing as a hedonic treadmill, but that doesn’t mean we need to get off of it. Instead, we just need to pace ourselves. In economics, there’s a related concept called decreasing marginal utility. Imagine you’re about to eat the world’s largest lollipop. The first bite will probably taste pretty good but each bite after that will be a little less pleasurable. At a certain point, another bite would probably make you feel sick.

The solution is to eat the lollipop a little over time rather than all at once. That’s because after a period of time, that marginal utility starts all over so the next bite after a long break will taste pretty good again. The more we split up those bites, the better each one will taste, the less often we’ll need to buy a new one, and the less weight we’ll gain. We just improved our lives in three areas simultaneously!

So since most of us don’t buy giant lollipops, how can we apply this to our actual lives? To stick with the eating example, don’t finish your plate when you go out. Instead, split it with someone else or plan to take at least half of it home. I thought this would leave me feeling hungry but I’ve discovered that eating half of the portions that restaurants provide is almost always more than enough. Even if it doesn’t taste as good nuked the next day, you’ll still probably enjoy it more when you’re really hungry again. Plus, you’ll save money and calories.

It works in other areas of our life too. When you’re making a new purchase, don’t always get the biggest and best available. Instead, look for small, incremental improvements that directly address problems you’re currently having.

This works particularly well when it comes to technology. My philosophy there is to only buy the features I need, which usually puts me at least a year behind the latest and greatest innovation. I still like to upgrade over time (I’m certainly no Luddite) but I do so a little later than everyone else. The advantage is that I end up paying a lot less for the same item.

For example, my current smartphone is the LG Optimus V. It only has a 3.2 inch screen, doesn’t have a ton of memory, and runs an older version of Android. I’d prefer a larger screen and a faster Internet connection so my next phone will probably be the HTC Evo V, which has a 4.3” screen and a 4G connection. That will be exciting for me even though that phone first came out a year ago so it’s already a dinosaur in the tech world. But that also means it’s relatively cheap. I could pay more for a newer phone but I don’t really need their extra features right now and they’ll be a lot more affordable in another year or two.

You can apply this same mindset to big purchases like cars as well. When I moved to San Diego in 2006, I upgraded from my Toyota Corolla to a BMW convertible because I wanted to fully experience the southern CA lifestyle, but I bought a used one from 1995. What am I missing from not having a newer car? As far as I can tell, it’s just a few cosmetic defects and the ability to lock and unlock my door with the push of a button on my key chain. Is that really worth paying tens of thousands of dollars more?

Can you think of purchases you’ve made in which you upgraded but didn’t go all the way? If so, feel free to share any experiences, thoughts, and tips in the comment section below.