The Vancouver Canucks were outscored by the Boston Bruins 23-8 in the Stanley Cup finals, and yet the Canucks managed to win 3 games and stretch the series to a deciding seventh game. A lesson here is that the margin of victory in each game isn’t important. However, this sports lesson does not carry over to personal finance.
When it comes to your money, the margin of victory (or loss) matters a great deal. A single poor choice when buying a car can cost you more than the total savings in years of carefully finding the cheapest gas prices. It’s dangerous to scrimp on small things and use this as a justification for splurging on something expensive.
Psychology plays a role here. Sometimes when we know that we’re spending money we shouldn’t spend, we think “if I’m going to break the rules, I might as well go all the way.” This way of thinking is just as wrong with finances as it is with diet. Having one cookie or ten cookies may both violate the rules for a particular diet, but small transgressions are clearly better than big ones.
In hockey we only count the number of battles (games) won, but in personal finance, we add up the margins of victory of all the individual battles.
"Penny wise, pound foolish" is quite something that irritates me too. I see this all the time. A friend of mine was telling me about his girlfriend who was showing him she saved 13$ by buying groceries at a cheaper store and then she would ask him to celebrate the savvy attitude with a 90$ dinner. And yes, it's psychology - we do good things to appease our conscience so we can make room for nasty debaucheries. Walk 3 km to lose weight (burn 200 calories) and reward ourselves with a drumstick ice-cream (340-420 calories).
ReplyDelete@Andi: Those are some good examples. I've never really understood the idea of rewarding myself.
ReplyDelete