This is one of the banes of my financial existence, and has surely cost me thousands (if not tens of thousands) of dollars throughout my life. I’m talking about overestimating my needs (or wants), and buying things to meet such inflated needs. The result is stuff I don’t need, and money down the drain.
So, let’s learn from my mistakes.
We Tend to Overestimate Our Future Consumption
In my experience, I (and pretty much everyone I’ve ever known) tend to overestimate wants and needs. A few examples can bring this into focus:
The Food Waste Facts
Have you ever gone to a supermarket and bought lots of delicious and healthy fruits and vegetables, only to watch a big part of them rot a week later? I think this happens more often than we care to admit. At the store, we think “it’s not a lot of stuff; we’ll definitely eat it in the next few days”. Then, life happens, and we wind up ordering delivery, or eating out, or even making a frozen meal because we’re just exhausted. However, the fresh spinach you bought won’t wait, and you wind up having to chuck it. Not good.
In fact, it turns out that this is a big, nationwide issue. Here are some food waste facts:
- About a third of food produced worldwide is lost or wasted.
- In developed countries, most food waste is attributable to consumers.
- In the US, 30-40% of the food supply is wasted.
- Also in the US, at the retail and consumer level, around 31% of the available food is wasted, adding up to about $161 billion dollars per year.
- Overall, an American family of four spends around $1,500 every year on food they end up throwing out.
Since this site is about personal finance, I’m going to zero in on that last one. Did you know that if, starting ten years ago, you had taken just half of those $1,500 ($750) and invested them in Apple every year, you’d have about $33,482.27 today?!? That’s a market gain of about $25,294.77!
So, indeed, food waste costs us real dollars – lots of ’em.
The Big Cars
For another example, take buying a big car, like a three-row SUV or minivan. You think “this has got the space for all those road trips we’re going to take – we’ll see the grand canyon!” And maybe you do take that road trip, but the other 99% of the time you spend in the car would have been fine with just two rows of seats. Wouldn’t it have been much cheaper just to rent the big SUV for that trip?
Let’s take a couple of cars, for comparison. A three-row GMC Acadia is advertised as starting at $29,000, while a two-row GMC Terrain starts at $24,995:
Assume you buy a new car and keep it for the average time (which is about 6 years). That means that, if you buy a new Terrain every 6 years, you save about $4,005 with each purchase, which comes out to $667.50 per year. To go back to the Apple investment scenario, if you invested that money each year for a 10-year period, you’d have about $29,587.68. (I know I make a lot of assumptions annualizing the numbers and whatnot – I’m not trying to make a precise example; I’m just trying to make a point).
Neglecting to Save Money at Restaurants by Over-Ordering
This one has happened to all of us. We go to a nice restaurant, and everything looks so good, plus we’re hungry. So, we order a drink, appetizer, and main course. And then after getting stuffed, we get that desert menu, and that chocolate cake looks delicious (at least that’s my desert weakness). You know what happens next – you order the cake. In the end, we’re not just satiated, but instead in a food coma, and with much lighter wallets.
Once this becomes a recurring pattern, we’re probably wasting thousands of dollars every year on excess food and drink. But to take a conservative estimate, let’s make it $20 per month. To use the Apple investment example one last time, after 10 years of investing that money, you’d have $7,726.52:
The Lesson: Estimate Your Needs Realistically
I think one solution to this over-estimation problem starts with recognizing it. For some reason, it seems to be a natural human tendency to consistently overestimate our future consumption. I don’t know if it’s an innate desire to accumulate resources or some sort of buyer’s excitement, but I know that I have to consciously fight it in order to not wind up overspending cash on “excess capacity”. (And don’t think I’m being some sanctimonious jackass, all up on his high horse – I overestimate my needs all the time, despite my best efforts).
Once you recognize the tendency, try to take it out of the equation and do a realistic needs assessment before a purchase. Ask yourself questions like:
- Do I really need this in the first place?
- Does it need to be this big? How often do I need all of this capacity?
- How often will I actually use this?
- Am I just having an impulse that will pass?
- If it’s food, will I actually consume this before it spoils?
- If you’re at a restaurant, maybe try ordering just an entree? If you’re still hungry, you can order an appetizer later – no one’s going to arrest you for eating “out of order”.
And hey, in the end, if you wind up under-estimating your needs, you can usually just upgrade. But, I suspect that will rarely be necessary.
Summing It Up
From my own life, I’ve noticed that we tend to overestimate our consumption needs quite frequently, leading to enormous wastes of money over the years. Perhaps by just recognizing the issue and doing a realistic needs assessment before each purchase, we can make ourselves a lot richer over time.
Here’s to saving that money!
Do you find yourself frequently overestimating your consumption? How would you do a realistic needs assessment?
Note: I had some technical issues and had to restore the site from a backup, resulting in the loss of most of the comments to this post. I apologize for the inconvenience.