Why You Really Don’t Need Expensive Material Goods

by | BiggerPockets.com

I recently wrote about getting my CCIM (why I though it was beneficial and what the process entailed). What I left out was that after I received my certification, they gave me this fancy, ballpoint pen with the CCIM logo engraved on it. And as far as pens go, it was a doozy: a top-of-the-line, state-of-the-art, elite pen if there ever was one!

I lost it the next day.

On a related note, not too long ago, I was roaming around the aisles of Target. I was wandering around and I came across a pack of 20 BIC pens for $1.69. I bought it. And while I’ve lost plenty of them since then, it hasn’t bothered me much for some reason.

As far as pens go, the sky is really the limit. This Montlblanc Meisterstuck Solitaire Blue Hour midsize ballpoint pen costs a meager $1,005 and is surely worth the investment. Or forget that, why not try this Montegrappa My Guardian Angel rollerball pen for just $67,945. Just in case you’re on the fence about it, I should note that it comes with free shipping!

On the other side of the equation, it’s hard for me to imagine how a company can make a profit by selling pens for approximately nine cents a piece. It reminds me a lot of Leonard Read’s famous essay I, Pencil that Milton Friedman discussed so memorably when explaining how a market economy works.

But that’s the thing about market economies, they provide lots of cheap goods that will get the job done, along with lots of ridiculously priced “luxury” goods that have a brand that is “so in right now!”

Related: How I Saved 40% of My Monthly Income & Amassed $100k in Assets

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Deferred Gratification

I, and many other’s on this site, have noted the famous Stanford Marshmallow Experiment, which demonstrated that kids who were able to defer gratification did much better later in life. Indeed, the scientific literature has consistently shown that the ability to defer gratification is one of the most important predictors of someone’s success in life. If this isn’t something that comes naturally to you, it is critical to work on cultivating this mindset.

But I’ve also stressed that you “must learn to enjoy the path,” rather than be obsessed with the destination. If you’re always just trying to get there, you’ll very soon realize there’s no there to get to. And you will have wasted your life pondering about a future that will never arrive.

This can be applied just as easily to the things you buy as it can to your daily habits and mindset. You don’t need the best stuff to get by.

Diminishing Marginal Returns and Faux Wealth

There’s this meme I saw floating around comparing someone who’s broke to a billionaire. Price tags were attached to their various items of clothing. The broke person’s shoes were worth $1,000, his pants $400, etc. For the billionaire, his shoes were worth $25 and his pants $15, or something like that. This is of course, an exaggeration. But it highlights that there’s a lot of truth in Macklemore and Ryan Lewis’ song “Thrift Shop“—That’s 50 dollars for a t-shirt, limited edition, let’s do some simple addition [lots of profanity]I call that getting swindled [more profanity].

People pay a lot of money for stuff that is barely better than generics or the stuff you find at a thrift shop. In fact, private label brands generally cost 25-30 percent less than their name-brand equivalents. And the difference between a luxury item and a normal item can be many, many multiples. A friend of mine mentioned she bought hand bags on EBay for less than half of what they cost retail, and she couldn’t even tell the difference. On the other hand, here’s a list of the top 20 most expensive handbags you can buy retail; number one is a mere $261,000!

Now maybe I’m just a guy (we men spend our money wisely on essential necessities like $21,327 sneakers), but I honestly can’t tell much of a difference between the top listed handbag and a generic one you’d buy at Macy’s for $200. (Or better yet, on ebay for half that.)

Related: 14 Unusual But Possibly Brilliant Savings Tips to Net You Thousands

Finding A Balance

Of course, these are the most extreme illustrations, but I’m sure you can come up with dozens of examples where many people (and possibly you or I) spend a lot of money on unnecessarily expensive consumer goods that add very little extra utility. My dad had a friend who worked at a furniture shop and would buy a new living room set every couple of years. My dad would then buy his “old” set for less than half of what he paid for it. My dad owns almost 1,000 units, by the way.

In economics, there’s something called the Law of Diminishing Returns, which notes that “in all productive processes, adding more of one factor of production, while holding all others constant, will at some point yield lower incremental per-unit returns.” You can apply this to pretty much any consumer good, and it would sound something like, “increasing the price/quality of a good will at some point (very quickly) yield less incremental return.” A $10 version of something is rarely, if ever, 10 times less valuable to you than its $100 equivalent.

Of course, I’m not saying to buy the cheap stuff you’ll find in the discount bin at your local dollar store. What you get needs to work. But it doesn’t need to be fancy. My brother’s motto is “buy the second-cheapest item available at the store.” The cheapest will usually be junk. This isn’t a guaranteed method, but it’s a decent rule of thumb.

On the other hand, going around flaunting fancy “stuff” is just a way of pretending to be wealthy and successful. The real thing is so much better. And at least from my experience, those who have it, rarely seem that interested in flaunting it.

Consumption Versus Investment

The reason this is so important is that whatever you spend consuming, you can not spend investing. Credit-card debt hit a record high this year. And those wallowing in it are in no position to start investing for their future. Albert Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it… he who doesn’t… pays it.”

Buying overpriced consumer goods is bad enough. When you put it on credit, it’s all the worse. You’re negatively investing; literally mortgaging your own future to pay for consumer goods that will depreciate 50 percent the moment you complete the purchase.

The investment mindset starts with learning to defer gratification. And there’s no better way to learn to defer gratification than to realize that you don’t need the best, most expensive stuff, anyways. Stuff, after all, is just stuff.

What about you?

Where do you splurge and where do you choose to save your money? Share your tips and tricks below!

About Author

Andrew Syrios

Andrew Syrios is a real estate investor in Kansas City and a partner in Stewardship Properties along with his brother and father. Their company owns just over 500 units in four states.

14 Comments

  1. Mike McKinzie

    Interesting article Andrew. I think the most important word in your blog is BALANCE. Yes, a Bic pen will put ink on paper just as well as a Montlblanc or a Montegrappa. My wife bought me a nice Waterman, back in 2006, about $100 and I still have it today, and have gone through about a dozen refills. It feels really nice in my hand, about twice the circumference of a Bic pen and I have large hands. What I find interesting is that you lost a very nice pen the very next day. This tells me you put no value on what the pen represented or what it cost. Why are we investing in Real Estate if we want to live our life wearing Thrift Store shoes, buying office supplies at the .99 cent store and driving 20 year old cars with 200,000 miles on them? Why drive a new Lexus if a 2006 Corolla will get you there just as easy? You are absolutely correct in that way too many folks go into debt to have a nicer thing and that is financial suicide. On the other hand, I know Billionaires who refuse to use Valet Parking because it cost $5 (or they don’t trust a Valet driver with a $200,000 vehicle!) If I decide to wear a Rolex instead of a Timex because I like the look of the watch, and it doesn’t cause debt, then that is a value choice I make. Besides, in most cases, the Rolex will go UP in value and the Timex isn’t worth a gumball. I once saw a show where a lady would cut paper plates in two to save money and used the Dollar Store to buy things for her daughters wedding. So, BALANCE, is the key word. Everything that is bought is supporting JOBS. As a final thought, “NEVER GO INTO DEBT ON A NON APPRECIATING ASSET.” And, “A PENNY SAVED IS A PENNY EARNED.”

  2. Jerome Kaidor

    I’ve never been a fancy guy. Have never understood the appeal of Mont Blanc’s and Rolex’s. But as my net worth has crept up, I do find myself opting for Milwaukee or Rigid tools instead of Harbor Freight. And I don’t bother selling my old stuff – I just donate it or toss it.

    I just bought something – financially – really stupid: a 60-foot swimming pool behind my house. Ka-Ching!
    But as they say, there’s no U-hauls to heaven.

  3. Cody L.

    Not only that, but honestly I don’t even have the desire. At this point in my investing career I can pretty much get whatever I want. But I don’t. I live pretty frugal (Tesla aside). Every day it’s a tee-shirt (many of them old AMD or Intel shirts from back in my computer days. Nothing like showing up in a Pentium II shirt to a closing), and white shorts.

    When I was young, I thought success was being able to go to work where you dressed up. Now I realize being successful is not having to dress up.

  4. Steve Vaughan

    Thanks for writing this, Andrew. Very topical too given a thread or 2 on the forums today.
    I learned the middle of the road is often the best value as well, eventually. The price of that black & Decker tool is cheap, but the cost is crummy work and replacing it 3x faster than a better one! I used to buy the cheapest, but spend more on tools, paints and brushes now.
    The best pens come from banks and title cos. Those things are awesome! Bet they are middle price point, too.
    I bought a nice, completely impractical little car for my wife for putting up with me and driving beaters for 20 years. It’s fun but I feel weird driving it. Gonna be hard to take the frugal outta me, but I’m trying. Can you do an article on breaking out of frugal mode someday? Always appreciate your articles!

  5. Vaughn K.

    Totally agree with the general premise here. I know way too many people who make less money than I do, yet drive nicer cars, spend more eating out, spend more on clothes etc. I wonder where they’ll be financially in 20 years versus me??? I think we all know the answer to that.

    My one caveat here though is that quality does sometimes matter. For things I don’t care about, and where there really isn’t much of a functional difference, like pens get the good middle of the road/cheapish Bic. They’re the most reliable pens I’ve ever used anyway!

    But some some things it is worth spending money on. That said spending it on the right type of expensive product is key.

    To me there are usually 2 kinds of expensive items. There are the ones that are built on the brand name hype, and there are those where all that extra money goes almost straight into building a superior product. I won’t buy the hyped up stuff, because it’s no better than the far less expensive versions. That would be something like Guess jeans or something. They’re not any better than Levi’s, or even generic ones, but cost multiple times more. NOT worth it.

    However my Red Wing boots that I have, which are about $200 now, are all quality. They just spend that much more on materials (everything from the leather to the soles are obviously better materials than on cheap boots), and having had my oldest pair for 10+ years now, with years left on them before I even have to resole them, keeping in mind they are resoleable… AND them being the most comfortable shoes/boots I have ever owned in my life… They’re a reasonable expenditure versus $50 Sketchers or Lugz which fall apart in a few years from my personal experience.

    Not everything falls into that category, but some things definitely do. Tools would be another one IMO. I have a mix of random cheap Chinese tools and some quality Craftsman etc stuff. I’ve had most of these in the same tool box for years, so they’ve been everywhere together in the same environment. The Chinese stuff is mostly rusting away now, and the quality American made tools look brand new. I can still use the rusty wrenches I guess, but for how long? I’ll probably be able to give the Craftsman stuff to my grand kids when I kick the bucket, methinks the Chinese stuff will not last so long… So just making good value for money decisions for logical reasons is the real key. Buying for brand name is rarely ever a good idea, unless it is a brand name that stands for TRUE quality, not just hype.

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