It’s Not Saving Unless You Spend Less‏

Continuing my brief tangent into personal finance, here is an anecdote that brought home an important point to me in an amusingly drunken way.

Some months ago, I was in a bar with a large group of individuals, and someone was ordering shots for everyone. The barman offered to sell us the bottle. Having quickly done the math (we were all clever, arrogant, finance-types) we realized that it would be cheaper to buy the bottle than to buy the equivalent volume one shot at a time. Bargain, right?

Someone described this as “saving money”.

False. It not saving money unless you spend less.

For sure, we got a lower per unit cost. If we were already going to consume the volume equivalent of one bottle, then it might have been saving money. But we had not yet decided to consume that much volume. By making us focus on the per unit cost, the barman persuaded us (remarkably easily) to dramatically increase our total volume, and to spend a larger amount of money than we otherwise might have.

The per unit cost is important, but it is not “saving money” unless the amount of cash being handed over goes down.

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1 Comment

  1. Gavin Larssen

     /  January 10, 2013

    Very true. We end up buying unwanted stuff at store sales and clearances just because they are on sale; buy a ton of stuff at Costco just because it is cheaper in bulk, but never examine to see if we needed so much in the first place.

    Reply

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