In this past Monday's reader mailbag, I gave a brief answer to a question about an expensive watch purchase; you can go back and read my original answer here. That question, asked by a reader named Gerald, has stuck with me all week. Here's his question again:
For the past several years, I have been saving up for a really nice watch like the one my grandfather wears and about a month ago I finally purchased a Longines Master Collection Chronograph. It is so beautiful and it is like a modern pairing to my grandfather’s watch. He was with me when I bought it and he is getting quite old so it might be one of the last things we get to do together because he lives 2,500 miles away.
The thing is beautiful to me and full of meaning but yet I can’t bring myself to wear it without feeling tremendously guilty about the $7000 I poured into it. I could have knocked off the rest of one of my student loans with that kind of money and instead I’m still making payments and paying interest. I should have been out of student loan debt at least before buying it and now when I look at it I think of my foolishness.
I can’t sell it and recoup the full value of what I paid for it but I can recoup most of it.
My initial response to Gerald was mostly oriented toward encouraging him to stick with the purchase, because it had intense sentimental value for him and he had planned carefully for it.
However, what stuck with me about Gerald's question was the underlying guilt.
It doesn't take much reading of Gerald's message to clearly understand that he felt guilty for buying the watch. He's a clear headed individual who could see what other things he could have done with that money, and the opportunity cost of that watch was getting to him.
Let's be clear on what I mean by "opportunity cost." Opportunity cost is an investment concept that refers to the loss of potential gain from other alternatives when one alternative is chosen. We deal with opportunity cost all the time, albeit in a transparent way. For example, we face opportunity cost any time we choose to buy a non-essential item, because we could have done something else with that money. If I choose to buy a book, for example, the money invested in that book could have been used to buy a different book or something else entirely.
It is natural for a frugally minded person to think about opportunity cost, perhaps without even realizing it, when thinking about a purchase. It comes out when you ask questions like "Is this a good use of my money?" or "Do I really want this?" You're simply wondering whether or not the thing you're intending to spend money on is really a smart choice.
The thing is, consideration of opportunity cost often leads straight to a sense of guilt because you see other purposes for that money, ones that are tied to your long term goals, and those purposes seem really important. When you then cast a critical eye toward that non-essential expensive item that you're considering, it's really easy to feel as though you're putting your money in the wrong place, and when you feel as though you've done that with a healthy amount of money, you feel guilt.
How do you address that guilt, then? If this is a normal thought process of a price-conscious frugal person, how does a frugal person ever not feel guilty about a big non-essential purchase?
Here are four strategies that work well for me.
First of all, I budget for all non-essentials. If I'm making an expensive purchase of some kind, it's because I budgeted carefully for it and the actual execution of that purchase is not going to disrupt any of my long term financial goals.
In Gerald's case, he seems to have planned and budgeted for this purchase. He put aside money regularly for it and waited patiently until that money that had been put aside was enough to buy the watch he was eyeing.
This strategy takes away the argument that an expensive non-essential purchase is somehow disrupting my financial future. It's not. My financial future is still fully on track.
Second, I understand that occasional splurges or extravagances are not inherently a bad thing. I am not doing something wrong by splurging on occasion. An occasional splurge opens our lives to a wider variety of human experience, both in terms of the splurge itself (which is outside of the norm of our life) but also in terms of the anticipation and the aftermath of the experience.
In Gerald's case, this splurge has particular meaning because of the association with his grandfather. It is an item that is definitely outside of the norm of his life and is also imbued with a great deal of personal meaning.
By focusing on the benefits of the occasional extravagance, this strategy takes away the argument that the purpose you've chosen for the money is somehow wasteful. An occasional splurge that offers a unique divergence from the norm, one that's buffered by planning and anticipation and appreciation, is a worthwhile part of human experience and not a bad thing in and of themselves.
Third, I very carefully consider big purchases before diving in. Is this really a good item that matches exactly what I want rather than something I'm nudged into by marketing? Have I thoroughly researched the exact item and know exactly what I want? Is this a good price for the item? Asking and then answering these questions helps me to be sure that the purchase I'm considering is actually a sensible purchase and that I'm not wasting money on something I don't truly want.
In Gerald's case, he clearly researched his watch purchase extensively. He knew exactly what he wanted and (I assume) he looked around for a good price for that item, likely in concert with his grandpa. It's what he wanted, he was confident in the quality of it, and he found a good price on it (I assume).
This strategy goes a surprisingly long way toward scratching my sense of frugality. If I know that this is a well considered purchase, then my sense of making a mistake declines drastically.
Finally, I evaluate the reality of how much I'll use this item or how much this experience will impact me. This is a surprisingly important part of the equation. If I am not sure that I will use an item a lot, then I do not buy the expensive version of that item. I go for the cheap version, see how much I use it, and then upgrade as I see a reason to once I become more experienced with its use. For experiences, this is a bit trickier, but my strategy here is to simply maintain an ongoing "bucket list" of experiences that I want to have and aim for splurges from that list, because those experiences are usually ones that I've considered and know that they will have some real impact on me.
For Gerald, he's buying an item that he has experience with and that he's confident that he's going to actually use and appreciate. He appears to be a bit of a watch aficionado and he is considering a watch that will last a very, very long time, thus it is something that he will use for a very long time. It will not only tell time for him, but it will remind him of his grandfather, a person Gerald seems to cherish. It passes the test of whether he'll use it or not.
This strategy really cuts into the sense that this is a frivolous use of my money. If I truly understand that this splurge is something that I'll use, that will have a meaningful resonance in my life, then it begins to feel more worthwhile in the big scheme of things.
These four strategies work in concert. If I understand that this was budgeted for and that I can afford it, that it really is okay to splurge on occasion, that this is a well-researched purchase, and that it will have a positive and lasting impact on my life, I usually feel good about an occasional extravagance. It's when one or more of those factors fall away that I begin to feel like I'm making a mistake, and it's that sense of a mistake that begins to produce guilt.
My advice to Gerald is to carefully walk through each of those four strategies on his own and consider each of them. It is my strong impression that he's living up to all four of those strategies and I believe that, if he considers all of them together, he'll feel much better about making that purchase without a sense of guilt.
My advice to you, if you're struggling with guilt over a major purchase, is to follow this same framework. Budget for it, do some homework, make sure it's something that will really have impact, and then do it with the understanding that an occasional splurge is fine.