A different way to think about money
How many Bahamas vacations could you get instead? Those questions put big purchases into perspective.
In other words, what are you giving up in order to buy that Christmas gift? In economics terms, that's called the opportunity cost, and it's something people don't think about enough, Ariely said.
Ariely, a professor of behavioral economics, once went into a Toyota dealership and asked people what would they not be able to do in the future if they bought that car they were eyeing.
"You would expect people to have an answer," he said in a video essay. "But people were kind of shocked by the question. They never thought about it before."
Bottom line: When we buy something now, something else has to give down the road.
Ariely said he's trying to develop an iPhone application that puts money in these concrete terms. First, you tell the application what you really like (vacations, shoes, lattes and books, for example).
Then, when you want to buy something, it will remind you that the purchase is the equivalent of, say, half of a day in the Bahamas. Is it worth giving up that half-day to make the purchase?
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
ABOUT SMART SPENDING
LATEST BLOG POSTS
Saving just a single month of expenses may take longer than you think. See how your savings rate affects how quickly you can build a solid emergency fund.
VIDEO ON MSN MONEY
BLOGS WE LIKE
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'