I saw a £2.5million car at my local pub a few weeks ago.
That is to say I saw a car and when I went into the pub for a drink, the owner of the car was telling anyone who would listen how much he had just paid for it.
I am not a ‘car person’ but I am fascinated in what people spend their money on and so I was one of those people who would listen.
He is a single guy, early thirties and lives locally. He had just bought this bespoke built car for £2.5million and taken it for a drive. He ended his drive at the local and bought himself a pint to celebrate.
Now I have no reference point as to whether this car is worth that amount of money. It is pointless even speculating on whether I would spend that on a car, as I don’t have that kind of money anyway. What I do know more about than cars, is human psychology when it comes to spending and saving money.
I would guess that the ‘value’ to him of buying that car was not in the car itself (its intrinsic value), but the value to him of being seen to buy and therefore own that car. He could have bought a property or a business for that money, or even better, invested it for his future. But those three purchases are not visible to anyone else, only he would know about them. The car on the other hand, it was very visible to everyone. Even that wasn’t enough, it is hard for most people to guess the price of a car beyond a certain make and model (probably above a price point of £250,000 most people can’t guess the price of a car within £500,000). So he had to tell everyone what he had paid, should they otherwise assume that he had only paid £500,000 for it. In my early twenties I made a similarly awful move, when, having taken an expensive bottle of wine to a dinner party, I made sure to mention the cost to the host (she was a student and I was working, so doubly awful).
The problem with these highly visible purchases as the excellent Morgan Housel points out in his book The Art of Spending, is that they don’t have the effect on others that you are looking for. The people that you are trying to impress will see you driving the car and be jealous of the car, not of the driver. They are more likely to resent or ignore the driver.
I do wonder whether our new car owner returned home and felt elation, or a sense of deflation. Once there is no one around to see your £2.5million purchase does the shine come off a bit? In the quiet moments, at home alone, did he wonder what else he could have spent that money on.
It is easy to mock the person who spends ostentatiously, but if we are all honest, there are probably purchases that we make that are not done with the purest of intentions. We buy things all of the time and rationalise them to ourselves afterwards (a little like the chocolate bar at the petrol station as a treat when we fill in). If you can’t think of an example of this type of purchase that you have made, you are either a saint or deluding yourself.
Of course, we should enjoy life and not completely go without, but if we examine our motives and balance our spending now with our spending later (also known as saving) then we might find ourselves in a more consistently happy place for the rest of our lives.
The team always welcome a chat about the balance of spending and saving. They are helping clients daily to understand the trade-offs inherent in planning for their futures. Get in touch via our Hook office, if you want the same guidance and hand holding.