I've noticed something peculiar about the way people spend borrowed money. Give a man $500,000 of his own savings, and he'll think twice before spending $20,000 on something unnecessary. Give him a $500,000 construction loan, and suddenly $20,000 doesn't seem like much money at all. After all, he's still got $480,000. Wonderful. He's spent twenty thousand dollars and feels almost as rich as he did five minutes ago.

There's a name for part of this: mental accounting. We put money into imaginary compartments and treat it differently depending on where it came from and what we've decided it's for. The $20,000 we earned is precious. The $20,000 sitting inside a construction budget is just another line item.

And once we've borrowed half a million dollars, something else happens. Our sense of proportion changes. A $2,000 expense that would have ruined our afternoon suddenly becomes a rounding error. Another $5,000 for better fixtures? Why not? We're already spending $500,000. That's anchoring at work. The big number makes the smaller numbers look harmless.

Then comes the dangerous part. We've already committed so much money that spending a little more feels like the sensible thing to do. The contractor recommends an upgrade. The architect suggests an improvement. The project is already underway. Why spoil everything by getting cheap now? And before long, we're spending like drunken sailors, except drunken sailors generally have the decency to stop when they run out of cash.

Of course, financing isn't the problem. Borrowed capital allows investors to undertake projects they couldn't otherwise afford. And refusing a necessary $20,000 expense simply because it sounds expensive can be just as foolish as approving an unnecessary one.

But borrowed money has an extraordinary ability to disguise its own cost. We look at the $480,000 remaining and forget that we still owe the entire $500,000, plus interest. Maybe the most dangerous number in a construction budget isn't the amount we've spent. It's the amount we think we still have available. Because once money becomes a balance to be used rather than a debt to be repaid, restraint starts looking like a missed opportunity.

So here's my question. When we're spending borrowed money, are we making better investment decisions because we have more capital available, or are we simply becoming less sensitive to the cost of our decisions? And would we approve that same $20,000 expense if somebody asked us to take it out of our own bank account tomorrow?