There are two enormous pitfalls (among others) when trying to save money, one of them are positional goods, the other is lifestyle inflation.
Lifestyle inflation, is when, upon increasing our income, we increase our expenses “because now we can afford it” often, increase the expenses more than the income. So one buys a bigger car, or a bigger apartment, or goes on holidays to more exotic places. After a while, that becomes the norm, you get used to it, and then you need another slightly more expensive car, etc.
In this article I will discuss positional goods, we can leave lifestyle inflation for another day.
What are positional goods?
But today’s post will go deeper into positional goods, what are those so-called goods that are positional? It is basically, a good (or service) that is used to signal status among our peers. That can be any of the things mentioned in the above paragraph (houses, cars, holidays, suits, jewelry, etc.)
Most importantly, those are things that do not really give any value, only the satisfaction of researching about it, buying it and being happy about buying it. When one has got used to it, then the happiness level goes back to where it was before acquiring that object (or service).
For example, a drill, or a bicycle or a car, are not necessarily positional goods, but they can be as soon as you convince yourself that you need that drillmaster 2000 (or whatever fancy drills are called) or a sports car, that you are falling in the Consumerist trap buying shit you do not need and that will not make you happier.
A Little Story
It also happens to me, about 4 years ago, I bought a watch that I thought I would own and wear forever, nevertheless, after some time, I started to think it looked out of fashion, and that I was not so happy about it any more.
Therefore I have since started to think of buying a watch. I am perfectly aware that a new watch will not turn me into James Bond.
But still, something in my unconscious mind, tells me that it will.
This is why, after realizing that, and reflecting on it. I am currently selling all the watches that I own, in order to buy one simple, low-maintenance utilitarian watch.
How can YOU avoid falling in the positional goods trap?
First of all, one needs to be honest with one self and be self-aware, otherwise that is nothing can possibly be done.
Second, realize that is not something you NEED, it is something that you convinced yourself that you need, but you will be equally happy without it. In many cases, we tell ourselves that we need a newer car, for example, or that we need a car, when many, many people can perfectly survive without a really expensive vehicle that is idle more than 90% of the time.
At that point, you will realize that you do not need that, but then you will say “I want it anyway, I can afford it”. Well, most likely, even though you think you can, you really can not. A VERY easy rule, is: If you need to borrow money for it, you most definitely can not afford it.
If you do have the cash for it, that you should make the exercise of thinking, how that fits in your budget and in your financial goals. Most of the time, it is still not worth it. Because you spend money now, and in 3 to 6 months, you will be exactly as happy (or unhappy) as you were before spending that money.
I rest my case.