Yeah, I can’t wait to see what their lawyers have to say about this entry. But, bear with me on this for a moment.
Currently, McDonald’s is running a coffee promotion where any sized coffee is 69 cents. Sweet! I can buy a large for only 69 cents. Look how much money I’m saving you honey. Except I really can’t drink a large coffee. It gets cold before I can finish it so I end up throwing half of it away. So if I’m throwing it away, am I really saving any money?
So I’ll get a small. That’s a more reasonable size anyway. But, if McDonald’s has “averaged” out the cost of their coffee, then they’ve overpriced the small in order to compensate for losing money on their large. Or, they’ve decided that it really does cost 69 to make a large coffee and are overpricing both the small and the medium.
Do I buy the small because it’s what I need, or buy the large because it is a better value?
Actually, while writing this, I see that Pizza Hut is doing the same thing–$10.00 pizza, any size, any number of toppings. Now who wouldn’t order the large, meat-lover’s pizza with every topping possible. Think of the deal you are getting! Think of how much money you are saving!
And that is the cause of the recession.
It really isn’t McDonald’s or Pizza Hut’s fault. They are just appealing to our addiction to “the deal.” We don’t really need the large, meat-lover’s pizza with every topping possible any more than we need the large cup of McDonald’s coffee. But we want to think that we are getting more than what we are paying for. The problem is, we are confusing wants with needs, and needs with values. We are willing to accept short-term reward at the cost of long-term consequences. One look at the credit card fiasco and mortgage debacle will prove it true.
Two + years ago, we decided to put an addition on our house. Part of it we were paying with money we’d saved (yay us, we’d actually saved something), and part of it we were financing through a line of credit. We wanted to make sure we could actually afford the line of credit (yay us, although in hindsight, it does seem like a no-brainer) and only borrowed what we needed.
Can I tell you how hard that was to do? Banks didn’t want to loan us that “small” of an amount–and I’m not talking hundreds of dollars or even thousands of dollars. This addition was in the 10s of thousands of dollars and no banks wanted to give us the money. More than one bank urged us to basically refinance the house for THREE TIMES what we needed and “use the rest to invest or take a vacation.” I got offered better rates for the more money I borrowed — “think of the money you are saving” I was told.
Luckily, I stood my ground and located a company that would loan me my “paltry” amount (although even they said, “We could give you a better rate if you took out an extra $20,000. Just put it back if you don’t need it.”) Okay, I don’t know about you, but if someone “gives” me an extra $20,000, I’m going to spend it.
But look at how many other people took the financial experts’ advice. If we’d done as they’d suggested, we’d be one of the houses in foreclosure.
It’s time for all of us to step back and take a breath. Stop buying what you don’t need. Stop using “a good deal” as a reason to purchase something that isn’t quite right for you. The odds are, any money you saved will be lost in the fact that the item doesn’t meet your needs. You will throw away the extra coffee, get heartburn from the overly big, too rich pizza, or be lost inside the oversized house.
Buy according to the value that the item has. I price my clothes by “cost per wearing.” If I want to buy something very trendy, I spend less money because I know I’ll only wear it a couple of times before it goes out of style. But long-term items–coats, some pants, sweaters–I price per wearing. If I have a coat that I’ll wear for 10 years (and I do have more than one that is 20 years old), I don’t think twice about spending $100 on it. That’s $10/year and even wearing it for only four months is still less than $3.00/month.
As we finish out this recession (hopefully it won’t be around for too much longer) reconsider how you are spending your money on the “stuff” that is in your life. Make sure it is something that you need–something that brings value to your life and isn’t just “a really good deal.” It isn’t. It will cost you a lot more in the long run. And if you made the “improve your diet” resolution, lay off the meat lover’s pizza and large McDonald’s coffee.