20th June, 2022
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Welcome to the Idiot Money newsletter. This week, becoming wiser with money by understanding that the price of something should be a final check on the sense of a spending decision, not the starting point, including:
How most people read wine lists the wrong way around.
How this same tendency expresses itself even more egregiously when buying houses.
And uncovering the coalitions of rewards in every trade.
Your enjoyment of an experience relies on the story you tell yourself about it; high expense is an unnecessary, even foolish, ingredient of such stories.
You’re in a restaurant, and you’ve just been handed the wine list. After getting over the initial hurdle of red, white, rosé, or orange (or perhaps something bubbly) where do you look?
Is it to the left – guided, perhaps, by matching the tasting notes to your meal? Or perhaps by a nostalgic yearning for a much-loved holiday in southern France? Or maybe you’re drawn towards a vineyard with a funny name? Starting on the left, you make your choice, and then see if you can afford it.
Or do you start on the right – looking at the prices and working back from there?
If you’re like most people, you start at the right more often than not. And if you ask for help, the first question a standard-brand sommelier – just like someone selling you a house, a car, or just about anything else – will invariably ask is: ‘what’s your budget?’
Yet does this work?
At one end, you could miss getting exactly what you want for a fraction of your budget. And at the other, is discovering that what you wanted you don’t want enough to pay what it costs a disappointment or a lesson?
(There is of course a ‘snob’ value to wine, but it can easily backfire. I once had a drink with a particularly egregious oaf in Qatar, who took one sip of whatever was open and proudly declared ‘I can’t drink this’ before making a show of ordering the most expensive bottle on the list. He made an impression, but I’m not sure it was the one he was going for. Being guided by something other than price makes you instantly less of a twat.)
We adopt the same attitude with most purchases. Nowhere more obviously than with the biggest purchase most of us will ever make: buying a home.
The common approach is to work out what is the most expensive house we can afford – and not even that, the most expensive house we can afford with the most borrowing the bank will give us – and work backwards from there. Even if we could have had all our needs met for a much smaller sacrifice of current and future resources.
And, perhaps more to the point, regardless of if we could get everything we want or not, for any size of sacrifice, if you don’t think there’s inherent value in questioning what it is you want before someone incentivised to upsell you gets involved, then please reply and explain this to me.
We do this despite being well aware that the most emotionally salient features of house-buying (e.g. the once-a-year garden party) that play the starring role in our purchase decision play a miniscule role in the quality of our lives compared to duller daily things like a commute or a living environment that encourages us to do the stuff we most want to do.
We’ve trained ourselves to unthinkingly reduce everything to a number, so we instinctively collapse inescapably complex decisions into simplistic shortcuts to mistaken conclusions.
That this is understandable – complexity inspires just the sort of discomfort and highlights just the sort of lack of confidence we run from at any cost – doesn’t stop it being really, really, stupid.
When we’re uncomfortable and unconfident thinking about money, higher stakes don’t inspire greater reflection, they inspire bigger mistakes. Failures to think things through wouldn’t be too bad if they were restricted to the realms of coffee and cat food. Unfortunately, as the size of the spend increases, so does our tendency to bugger it up.
Houses are especially complex because a single object is used to meet myriad needs. Houses are palaces of self-deception. Primarily (one hopes) they provide shelter and somewhere to store sustenance. They are a place to recharge, and a canvas for creative expression. They are an environment that enables and encourages us to fulfil our potential.
But such intrinsic values are often dwarfed by extrinsic ones. Every house is bought partly for ourselves, and partly for our perceptions of other people’s perceptions of us. Partly to house what is integrally valuable to us, and partly to showcase what is incidentally valuable to the world, that we may bask in its reflected glorification.
There’s often a fine line between stuff that says something important about oneself and stuff that says, crudely, ‘look at what I can afford’. We attach ourselves so enthusiastically to the latter that we’re prepared to not only spend all our resources on it, but to borrow some more and make a leveraged all-in bet on it too.
It turned out that this friend wanted to get away from his wife and children. In a nice way. Everyone needs their personal space, and no one needs to be co-dependent.
I suggested that before he committed to the extra couple of decades of work that a bigger place would necessitate, he told his wife what he’d told me. Having been party to many years of husbands and wives surprising each other during financial-planning meetings when they let slip long-simmering wants of which the other was oblivious, I suspected that if he’d like more time to himself, then his wife probably did as well.
She did.
They now treat the study as a time-share. Hundreds of thousands of pounds – and goodness knows what knock-on physical and mental costs – saved by two easy interrogations of what was actually wanted.
Wine or houses, this isn’t about spending specifics.
(The closest I’ll get to advice on that score is borrowing from pioneering designer William Morris: ‘If you want a golden rule that will fit everybody, this is it: Have nothing in your houses that you do not know to be useful, or believe to be beautiful.’)
It’s rather an explanation of why, if you get the fundamentals right, you don’t need such advice, any more than you need to be told crisps are not what your body wants when you’ve gone without them for a few weeks. You already know what you want to spend your money on. You just don't know how to know you know. That is, or at least should be, the role of advice.
Again, if this worked, no one could argue with it. But it often doesn’t work at all, or when it ‘does’, it does so at unimaginable and unnecessary cost – which, if you view your life choices in the context of your life, as you really probably should () is just another form of ‘not working’.
One day, a good friend of mine asked for my advice because he was thinking of moving to a bigger house. Intrigued, knowing both the existing spaciousness of his existing abode and that his children were settled in both size and number, I dug into what he really wanted. For no one who says they want a bigger house actually wants a bigger house. They maybe want to put some distance between their children, or put a cricket net in the garden (or ).
