How We Frame Our Spending Choices – and How to Do It Better

I really love finding ways to save a dollar here and a dollar there. I buy store brands. I skip out on little treats all the time. I make a lot of meals at home. I make a lot of things myself. I usually make attempts at repairing things myself. I’ve made big lists of ways to trim your spending.

Yet, there’s an interesting counterpoint to that effort, not in the idea that frugality is somehow bad, but that it’s misdirected. A great summary of this perspective is in this New York Times article How to Pinch Pennies in the Right Places. In that article, the author, Sendhil Mullainathan, points at a research study by Daniel Kahneman and Amos Tversky that people are more likely to put forth effort to save a high percentage on a very small price than the effort they’re willing to put out to save a small percentage on a big price.

It’s easy to see what they’re talking about if you put it in the form of a story.

Let’s say I’m at the store and I overhear someone whispering that the price on the $20 bag of dog food I’m looking at is $5 cheaper at a store that’s 10 minutes away. That’s a 25% savings!

On the other hand, let’s say I’m at the electronics store and I’m looking at a tablet that costs $500 and someone says that I can save 5% on that tablet by going to another store on the north side that’s 10 minutes away. Five percent? Probably not worth my time.

The catch, of course, is that in the second story, I’d save $25 on that trip. In the first example, I only save $5. However, by percentage, the $5 I save in the first story seems like a bigger deal.

That’s because our minds constantly use framing to make comparisons easier for us. We constantly think of things in terms of percentages rather than raw dollars. A $1 coupon for a $5 item seems great, but saving $5 on a $500 item doesn’t seem as worthwhile to us. Why? Compared to $5, $1 seems like a lot; compared to $500, $5 doesn’t seem like much.

If you step back and look at this from a broader perspective, it’s obviously better to spend 2 minutes to save $10 than it is to spend 2 minutes to save $1, yet people will often do the opposite if it’s framed poorly. If you can save $1 on a $3 item, it looks enticing, while saving $5 on a $1,000 item doesn’t seem like a very big deal at all.

The idea of framing changes the game, at least to a degree, when it comes to frugality, and some different approaches are needed.

Framing Has No Impact on ‘Instant Frugality,’ So Don’t Change Anything

Let’s start by looking at what isn’t affected by framing: “instant frugality.” By that, I mean frugal choices that don’t require any investment of time whatsoever, or a completely trivial investment of time.

When I’m at the store and I decide to buy the store brand version of an item rather than the name brand because I know the store brand does the job just as well, there is no time whatsoever invested in that decision. I’m simply making a choice to buy the less expensive option. That’s “instant frugality.”

When I’m driving along and I’m thinking about getting a coffee and I spy a coffee shop and choose not to stop there, there is no time whatsoever invested in that decision (in fact, it saves time). I’m simply making a choice to not buy anything. That’s also “instant frugality.”

“Instant frugality” choices are almost always good ones, regardless of how much you save. If you can save a dime in an instant, it’s worthwhile. There’s no “framing” involved in that decision at all.

So, my first suggestion for frugality with the issue of framing in mind is that frugal choices that involve no time or energy commitment, like choosing a lower priced item on the store shelf, are always good choices.

If You’re Making a Big Purchase, Do Your Homework Up Front

Whenever you’re spending a significant amount of money, you owe it to yourself to spend some time researching that expense. Are you really getting a good deal for that money? Are you buying the best “bang for the buck” version of that item? Are you finding the lowest price for that item?

Answering those questions can take some time. For most purchases above the $50 mark or so, I use a pretty standard method for researching those purchases.

First of all, I ask myself whether this purchase is a real need at all. Do I actually need this thing I’m considering buying? Or is there something else I can do to fulfill this need or desire? You’d be surprised how often spending some time thinking about a purchase in this fashion can change whether or not you buy anything at all.

Second, I narrow down the features I’m looking for. One feature that I almost always insist on is reliability. I’m not interested in flimsy items that will break if I’m going to be using this item with any regularity (and if I’m not… why am I buying it?). I usually identify a core set of features that I really care about and then, when I’m actually looking for an item that matches, I basically ignore the other features that don’t really matter to me. I’m not buying a car because it has a seat warmer, for example. I’m buying a car because it reliably gets me from point A to point B with reliability and good fuel efficiency. The presence or absence of a seat warmer is a non-factor in my purchasing decision.

Third, I identify a list of products that match the features I’m looking for. I usually do this by evaluating trusted product comparison tools like Consumer Reports. What do they suggest? What are their highest rated options that have the features I want? What is their “best buy” choice that has the features I want? This usually leaves me with several options for my purchase, all of which have the features I’m looking for. I usually have them ranked and will buy the highest one on the list unless I find an exceptional deal on one further down the list.

At this point, I start shopping for those options by price. I usually have a good idea of what I want and what the manufacturer’s suggested retail price is, so now I bargain hunt. I check lots of websites. I dig into forums. I’m simply seeking out a good deal on those items. If I can’t find a great deal on my top item, I start going down the list until I find one at a great price. I am generally willing to pay a little more for my #1 option and won’t choose other options unless there’s a nice discount – and that discount requirement gets bigger the further I go down the list.

This usually takes an hour or two for most purchases and several hours for others, but I find that in the end I wind up with a good item at a good price. To compare this to the story above where there’s a discount at another store, this process has generally already pointed me to the retailer with the best overall price so those situations rarely pop up for me.

All throughout this process, I’m usually still trying to talk myself out of the purchase. The most frugal strategy most of the time is to simply not buy something unless you actually need it. On big purchases that aren’t absolutely essential, I usually wait a while (often, at least 30 days) before officially deciding to buy because, quite often, my desire for that purchase will fade over time.

If you’re practicing frugality with framing in mind, it’s worth your time to actually do some research on major purchases. You’ll end up saving money on what you pay while winding up with the product that actually meets your needs the best. In other words, you create your own framing for big purchases.

Convert Everything Into Dollars and Cents

There are many situations where savings are framed in a way that makes it unclear what you’re actually saving. Savings will be expressed as a percentage, or in the terms of a sale (like “buy one get one free”), or in terms of a dollar amount without any context as to what the original price was (“$5 off!” doesn’t mean much if the original price was way too high).

All of these techniques are done by marketers to use framing against you. They want you to see the savings they’re offering as being as big as possible, regardless of whether the savings is actually worthwhile.

The best way I’ve found to fight back against that is to convert everything down to raw dollars and cents. This requires some math – having mental math skills is helpful, but almost everyone can use the calculator on their phone to do the same thing.

The goal is to always figure out exactly how much you’re going to pay per item and whether that’s actually a good deal. Figuring out the exact price usually just involves a bit of math. Remember that “buy one get one free” is actually just a 50% off sale – would you buy a single of that item if it were just 50% off? Convert it to dollars and cents and see if that purchase makes sense.

It’s worthwhile to use your phone as a comparison tool. What does the actual price of this item look like elsewhere? Amazon is always a good place to start, simply because they have many items for sale with reasonably competitive prices.

So, my third tip is to convert all prices and sales and discounts into dollars and cents, focus on the actual price you’ll pay, and make sure that price is fair.

Focus on Actual Dollars Saved Above All Else

If you’ve followed that third tip, you should be in the business of comparing the actual price you’ll pay at different retailers, with all of the sale tricks eliminated. How much money would you spend at this store? How much money would you spend on that same item at this other store?

If you have decided to buy and you’ve found that there’s a price difference, isolate that price difference. Nothing else matters than the price difference. Put everything in terms of the lowest price available to you, and then look at the options through that lens.

For example, you might be able to get an item at one store that’s 5 minutes away for $100, the store you’re standing in now for $105, and on Amazon for $102. Rather than looking at those prices, consider it a different way.

If you drive ten minutes round trip, it’ll cost you nothing. If you buy it here, right now, it’ll cost you $5. If you order it off of Amazon, you’ll wait a few days and it’ll cost you $2.

I use this trick because the reality is that the lowest price is a sunk cost. If I’ve already decided I’m buying the item, I’m spending that lowest cost no matter where I buy it, so that lowest cost doesn’t really matter any more, so I can just eliminate it from all options. All it does is shadow my actual decision, which is a decision to drive a bit to save $5 or order it online and wait a few days to save $3.

So, here’s my next tip: if you’re trying to decide among retailer options, subtract the lowest price available to you from all the options and look at just the extra costs from using certain retailers. Rather than thinking of it as spending $110 here versus spending $100 at another store, think of it as spending $10 here versus spending nothing at the other store. If you’ve already decided to buy the item, treat the lowest price as having already been covered and ignore that amount. That’ll help you make the decision as to where to buy it more rationally.

Start Comparing Different Things

The biggest value in all of this isn’t in comparing similar options, like whether to buy this exact item at Target or at Amazon. The biggest value in thinking of things in terms of raw dollars and your efforts is when you’re comparing all kinds of different things in your life.

The thing is, most frugality that isn’t “instant frugality” has a cost associated with it, usually in the form of time and energy. When you start looking at everything through that lens – I save $X by giving up Y minutes of my time and effort – you start to expose which things are really worthwhile and which things are not.

I often look at things through the lens of “is $5 worth ten minutes of effort?”. Most of the time, it is, so I’ll make time for it. If that’s true, though, then “is $200 worth a few hours of effort?” should also be an absolute yes. Where you need to say “no” is when you’re asking yourself “is $1 worth 20 minutes of effort?” That’s a firm no, and it’s only through thinking of everything in this way that you can start to discard the inefficient frugal choices and keep the efficient ones. In general, my threshold for frugal efficiency is that it needs to be saving me at least $10 per hour of effort, because that $10 is after tax and thus worth more than that in terms of income, unless there’s some additional reason to be doing this (maybe because I actually enjoy the task or something). Some people may have a higher threshold, and others may have a lower one, but you should always be considering your frugality through that lens.

Always think of frugality in terms of money saved versus time and effort invested. You can use that metric to compare all kinds of things – you can use it to compare cutting your cable bill to clipping coupons. Know what your threshold is, though – how much do you have to save for an hour of effort to make it worthwhile? Don’t bother with things that don’t save enough.

Make It Natural

The key to avoiding the framing of your spending choices is to make all of the tactics above a natural part of your spending habits. If you think this way naturally, then it starts to quickly become clear which frugal tactics are worth your time and which ones are not.

For me, it’s been a matter of conscious practice for a very long time. I’ve consciously made the effort to try to evaluate my frugal decisions through this lens over and over until it feels like the natural way to consider things. When I’m making buying decisions, I’m constantly flipping the dials in my head so that everything appears in terms of what I’ll actually save (or make) by doing things this way versus what I’ll actually save or make by doing things this other way, and then I choose the one that seems like the best value for me.

At first, this can seem slow and not worth the time. It can feel clunky to constantly turn to your calculator to make these kinds of comparisons, or to constantly stop and think through prices and choices.

Stick with it – trust me, it gets faster and faster until it feels like second nature. You’ll start to gain a natural sense of how to compare prices and how to decide whether investing effort is worthwhile, but this natural sense isn’t based on framing. It’s based on the raw dollars you’ll actually be saving versus the effort you put in.

Good luck!

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Trent Hamm

Founder & Columnist

Trent Hamm founded The Simple Dollar in 2006 and still writes a daily column on personal finance. He’s the author of three books published by Simon & Schuster and Financial Times Press, has contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and his financial advice has been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.