We’ve all heard the story, “Joe plant employee” wins the lottery and quits his job of 24 years, only to declare bankruptcy 36 months later – plowing through tens of millions of dollars in the process. This sad but true story happens often enough with lottery winners that it is turning into a cliché. A group that should be financially bullet proof turns into a financial mess. This is because they don’t understand “utility.”
In a nutshell, “utility” is a measure of enjoyment or usefulness per extra dollar spent. For example, if you’re now “Joe lottery winner,” one Ferrari is nice, but why not have two – after all you are a millionaire right? Does the second provide double to fun of the first? Why not throw in a Lamborghini as well, after all you can afford it! Three times the fun??? Not even close . . .
People think if they have more and more they feel better and better. This is why Tchotchkes are so popular. When you buy the wobbley headed Benjamin Franklin, you feel great when you buy it, but 10 minutes after you get home it ends up in a drawer, right?
Our homes are filled with this stuff. If you could only identify up front if the new purchase would end up in a drawer (or sit in the garage) unused ahead of time, this would save us thousands maybe even millions of dollars over our lifetime.
In fact there are four methods to help make sure you don’t buy stuff you won’t use or won’t enjoy.
- Wait 24 hours. You think you’ve found the perfect purchase and the salesman, being a salesman, says “this price is good for today only!” Do you know why he does this? Chances are good you will leave and never come back if he does not. Why? Because you’re caught up in the moment when you are “in front” of the “Tchotchke,” but when you leave, you’ll come to your senses. If you utilize this method you will have 24 hours to “come down.”
- Subscribe to Consumer Reports online. This will allow you to make purchase choices based on solid facts and considered reflection, not emotion.
- Ask yourself better questions. Will this improve the quality or enjoyment of my life?
- Finally, look to those that you want to emulate and ask, would they buy this?
As we progress through life we make a series of financial mistakes – including the professionals by the way. Our ability to learn from them will dictate where we sit at the end. Personally I’d like to come to the end of my life, look around my home and think – I built this little by little, but I made the right choice most of the time. Additionally, leaving both money and more importantly financial education for my children will take me into my golden years with pride. But it all starts with us. We need to get it right so they will as well.