A dollar is a dollar

No one likes “convenience fees.” These little charges often get added to online ticket purchases. Rather than list the price as the actual price, the seller can advertise a lower price and then add a bit on at the end, trusting that you won’t back out once you’re at the check out stage. They’re relying on the phenomenon that people often view money “in context.” A $8 convenience fee doesn’t seem that much stacked on top of, say, a $200 ticket order.

But this phenomenon isn’t entirely rational. If you walked into a Wawa to buy a $2 soda, went up to the counter, and found out it was actually $10, you’d probably walk out in a huff. In that context, an $8 fee would seem like highway robbery. But whether it’s part of a $200 purchase or a $2 purchase, those $8 are worth the exact same amount. Every dollar is a dollar. With money, context isn’t really a thing.

That doesn’t mean we can get out of paying “convenience fees.” But recognizing this can help with mental accounting. It might be possible to boost happiness by not viewing money in context. Negotiating hard on the big things, or cutting what seems like a small percentage from the big things, can open up space in other categories where a little bit of money can make a big difference. For instance, using a handy online mortgage calculator, we find that the monthly payment on a $300,000 30-year loan at 3.25 percent is $1305. The monthly payment with the same interest rate on a $310,000 30-year loan is $1349. The extra $44/month doesn’t seem like much in this context, nor does the $10,000 on the house. But that would be a reasonable amount in other contexts. You could take a friend out to lunch every month for 30 years. Or boost the book-buying budget by an extra 3 books per month.

In All the Money in the World, I talk about this context shifting with wedding spending. For instance, many people buy wedding flowers. This tends to be a relatively small amount of the overall wedding budget, but since wedding budgets are often big, it’s still a big number. Then people don’t buy flowers much at all after that. It’s not a budget category many of us think to create. But a $1000 floral budget could represent a $10 bouquet every other week for four straight years — which might induce a lot of smiles.

In any case, people find it “normal” to spend certain proportions on certain things, but changing the proportions can open up possibilities. A smaller house might mean more travel. An older or less flashy car means more babysitting and dinners out. Because a dollar is a dollar, everything is a trade-off, but the trade-offs can look different from the norm, and sometimes it’s fun when they do.

In other news: Do you listen to the Before Breakfast podcast? In today’s episode I discuss this same theme — “Every dollar is worth the same.”

In other other news: I’ll be joining Dorie Clark for a LinkedIn live discussion tomorrow at noon eastern. We’ll be talking working from home. Please tune in here. (Or follow links from Dorie’s page).

15 thoughts on “A dollar is a dollar

  1. Love this – valuable insights! Btw, did your financial book ever make it into an audio version? I would love to absorb the contents, but I do all my ‘reading’ in the car or during cooking 😉

  2. Very true. I have a friend who seems to spend a lot of money on things like massages, facials, expensive skin care/ makeup routines….and then laments how lucky my family is to travel so much (relatively speaking! Many people probably travel a lot more than we do, but we do prioritize it more than some people I think.) I always think to myself, “With all of that money for those constant massages, etc. you could definitely do a good amount of traveling!!” (if covid will ever go away, that is.) I have had maybe one massage in the past 15 years and buy my makeup at Target, so, there ya go! Ha!

    1. @gratefulkae, yes! It’s fascinating to hear how others spend money and learn about their perceptions of what’s “normal” in different fields.

      Plenty of women I know seem to treat regular high-end salon salon color, nails, and facials as “basic upkeep” — not a fun luxury — and can drop a pretty penny without really enjoying it. It seems sad to spend so much and not get intense pleasure from it.

      1. @Kathleen – I have never spent time or money on my nails. I never have. It has never been part of my experience or world view. So who knows, maybe people have been silently judging my hands as unpolished or inferior for years…and I will never know!! Oh well.

        1. Haha, Laura, we are peas in a pod there. Around age 35 I admitted “I am not the kind of person who will ever give two bits about nails, and that’s ok.” Looking around (pre-COVID) conference rooms where all the women seemed to have tasteful neutral manicures, I’d just shrug and think “that’s $30 and 30 free minutes I save every Saturday!” There’s great freedom I’m not giving a … hoot. 🙂

  3. So true!

    Just tonight, my husband was looking at our city’s monthly newsletter and remarked on some stats for average household income and average home price. He noted that if we kept the same ratio as those averages, we’d have a house that’s about 4x what our (very nice and spacious!) home costs. Apparently, we “spend low” on home compared to the city average. But that also allowed us to pay off the house before we turned 40 this year, while still aggressively funding the kids’ 529s and maxing out our retirement accounts (401ks and backdoor/mega backdoor Roths) and enjoying family travel. In other words: saving on housing (big expenditure) opened opportunities for us in other avenues of life.

    Relatedly: I’d love to hear more about personal finance on the podcast! As one of the folks who read “All the Money in the World” and really enjoyed it, more on the same would be so welcomed!

    1. @Kathleen – I’m very interested in personal finance content. I’m just always looking for ways to explore it that are interesting and helpful and feel authentic for me too. It’s a shorter list than the usual content (no grocery store coupon stuff…) but I keep looking for ideas.

      1. And bless you for skipping the couponing-type angle!

        A few months back you had the How to Money guys on the podcast. I’d love to hear interviews with some professional women who are intensely interested in the intersection of personal finance and building a rich, fulfilling life. Optimal use of time and money resources based on a core set of personal and family goals/values. I find this endlessly fascinating and am always innovating with these concepts myself, so it would be neat to hear how others are too!

  4. Good point! I loved this book by the way.
    I had a lot of experiences like this when we were building a house. Everything was so expensive that I stopped reacting to huge bills- $10000 here, $20000 there. It was all relative. But now I question whether I should buy a $300 dress I love. I should probably just buy the dress.

  5. I like the fungibility of money posts, too, and think you have great insights about how to use $$ as a tool to build a good life. Sadly, it seems that most Americans are letting money run their lives (read: debt) rather than the other way around and need quite basic personal finance advice, e.g., budget and live below your means.

  6. Another shout out for ALL THE MONEY IN THE WORLD here. It is a great book.
    Another shout out for not having your nails done, either. I was in a group professional photo recently where the women were in the front. I momentarily felt self-conscious because of my nails but then shrugged it off. My husband and I drive older cars and haven’t had a vehicle payment in years. This opens up a lot of possibilities 🙂
    I think one of the discussion points that is perfect for the intersection of time and money is the role of time in the value of money. A dollar earned, saved and invested today is indeed more valuable than a dollar saved in 10 years. This should be a huge motivation for people to save now and grind it out in the earlier years–stay in the workforce, make sacrifices if necessary–so it isn’t as difficult later. Saving for retirement or some big goal gets MORE EXPENSIVE as the years roll on. Related but also…inflation. It isn’t a sexy topic but when you tell someone it will cost $300,000 a year to maintain their $70K lifestyle when they are 100, their ears perk up.

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