Here’s one Money Mistake we all make

Ratan Tata with a Nano Car

Ratan Tata with a Nano Car. He asked his team to built a car under a challenging max cost

A person I know bought a new Car last year worth 6 lakhs. At car showroom, salesman got him really excited about new car. While signing the papers, salesman asked him if he wants to buy a cool accessory. A Car video (LCD screen) with wireless IR Infrared transmitter. This was priced only for Rs 20 thousand. What do you think this person did? He thought in his mind – I am already spending close to 6 lakhs to buy this car,  so 20 thousand more is no big deal“. He said ‘Lets do this‘.

Later we asked him that he never bought Car-DVD-player for his old car, what made him change his mind. His answer was ‘I am already spending so much so a small additional amount is no big deal’

This is how we think and make buying decisions lot of time. If you have to spend money today for some accessory, you think of it as expenditure or loss of money. However if you were spending a huge amount then you don’t mind adding additional small amount for accessory.

Let’s suppose you’re buying a new house built for your family for 50 lakhs. The builder has you excited about the latest Microwave oven, LCD TV, Blue Ray DVD player, Air conditioner, Dish washer and Surround sound speaker system, which he’ll include for only 2 lakhs more. If you wait until you move in to this new place, you might even buy all these items for just 1.5 lakh rupees. However, because you’re spending (or borrowing) 50 lakh rupees to have a home built, additional 2 lakhs just doesn’t seem like so much.

To avoid making this money mistake you have to mentally step outside of the situation and ask yourself if the proposed expenditure is one you would have felt good a week ago. Consider any other options you have, and finally, just wait a bit. A few weeks later – after a large purchase – you might be in a more rational state of mind to decide what something is worth to you. It is tough to avoid these money mistakes, but it is worth it.

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