Harnessing Ownership Bias to Save Money and Increase Happiness

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‍Five Key Points

1. Ownership Bias vs. Novelty Bias: Understand the contrast between these two mindsets. Ownership bias leads to valuing what you have, while novelty bias fuels the constant pursuit of the new.
2. Financial Impact:  Discover how upgrading possessions like cars frequently can drain your finances. Learn to break this cycle.
3. Relationships and Contentment:  See how the allure of "newness" can negatively impact relationships. Appreciate what you have to foster lasting connections and happiness.
4. Practical Strategies: Implement actionable steps to nurture ownership bias, from keeping a gratitude journal to prioritizing experiences over possessions.
5. Financial Planning with Purpose:  Take control of your financial future with Purpose Built's personalized strategies for long-term value and well-being.

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Intro

The pursuit of the 'new and improved' can take a toll on both our wallets and our well-being. Constant spending and the pressure to keep up with the latest trends can lead to financial stress and a never-ending cycle of dissatisfaction. But there's a path to greater financial stability and happiness: ownership bias. By embracing this mindset, we can shift our focus from acquiring more to appreciating what we have, leading to improved financial health and a greater sense of contentment. It's time to break the cycle and discover the true value of ownership.

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‍What is Ownership Bias?

Ownership bias, also known as the endowment effect, is the tendency to assign more value to objects simply because we own them. This phenomenon can be observed in various aspects of life, but one that hits close to home for me is car ownership. Consider the owner of a 30-year-old Volkswagen bus, let us pretend that the owner’s name is Sean. Despite the car's actual market value, Sean might believe it's worth more because of the memories made during family road trips, the reliability it has provided, and the personal connection they've developed with the vehicle. Other people without that personal connection to the car will take a much more objective view of the vehicle and view it as less valuable since it is 30-plus years old and has a couple hundred thousand miles on it. 

That example might be a little too specific to someone I know, but a more common one might be when you have an elderly relative with a large collection of stuff. It could be anything from antiques to stamps. They place a high value on each item due to the time and enjoyment they derived from collecting them and may enjoy telling you how much each one is "worth." The items may indeed be worth these optimistic amounts if sold to a buyer as enthusiastic about the items as your relative, but in actuality, the heirs to these treasures are often forced to sell them for pennies on the dollar or have them hauled away as junk because the market is so small and difficult to fund buyers.

The Cost of Chasing New: A Look at Car Ownership

Novelty Bias, Shiny Object Syndrome, Grass is Greener Syndrome, and FOMO (Fear of Missing Out) all describe the opposite of ownership bias. Many fall into the trap of constantly upgrading their possessions, driven by the allure of the new and the belief that newer equals better. Sticking with the car example, the idea of driving a 30-year-old vehicle might seem unappealing to some, yet the financial implications of frequently trading in cars are significant.

Let’s break down the cost of owning a new car every three years versus holding onto a car for ten years, assuming a new car costs $50,000.

Cost of Changing Cars Every 3 Years

• Purchase Price: $50,000 for a new car.
• Depreciation: New cars lose about 20% of their value in the first year and around 10% each subsequent year​. After 3 years, the car's value drops by approximately 40%, so the resale value is $30,000.
• Cost of Ownership: Over 3 years, you would lose $20,000 in depreciation ($50,000 - $30,000). If you buy a new car every 3 years, your total outlay over 10 years (buying 3 new cars) is:
  3 × (Depreciation Cost) = 3 × $20,000 = $60,000
• Insurance: Newer cars typically have higher insurance premiums. Let’s estimate $2,000 annually for a new car​. Over 10 years, this would amount to:
  10 × $2,000 = $20,000

Cost of Owning a Car for 10 Years

• Purchase Price: Same initial price of $50,000.
• Depreciation: The car continues to depreciate but at a slower rate. After 10 years, the car might be worth about 20% of its original value, or $10,000. Thus, total depreciation cost is:
  $50,000 − $10,000 = $40,000
• Insurance: Insurance costs typically decrease as the car ages. Let’s assume an average of $1,200 annually for the older car, totaling:
  10 × $1,200 = $12,000

Side-by-Side Cost Comparison

In this scenario, owning a car for 10 years could save you $28,000 over the decade. These savings stem from lower depreciation and reduced insurance costs, highlighting the financial benefit of resisting the temptation to constantly upgrade to the newest model. And the more expensive the car ($50,000 is quickly becoming a lower number for popular SUVs), the larger the savings will be. 

However, these costs extend beyond the price tag of the new car. Constantly chasing newness often means disregarding the benefits and satisfaction that can come from maintaining and valuing what you already have. This behavior can lead to a cycle of dissatisfaction, where the excitement of new ownership quickly fades, only to be replaced by the desire for the next upgrade.

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Beyond Cars: Ownership Bias in Relationships

Even worse, novelty bias isn't confined to material possessions; it can also seep into how we perceive relationships, often with even more devastating consequences. It's easy to fixate on a partner's flaws, leading to dissatisfaction and idealized fantasies about the "perfect" someone new. This can quickly pave the path to divorce. Here's a glimpse into the world of celebrities who seemingly succumbed to the allure of the "shiny new object":

• Zsa Zsa Gabor: 9 marriages
• Elizabeth Taylor: 8 marriages
• Mickey Rooney: 8 marriages
• Larry King: 8 marriages
• Lana Turner: 8 marriages
• Richard Pryor: 7 marriages
• Jerry Lee Lewis: 7 marriages

The number of divorces in the list above is staggering but the financial and emotional costs of just one divorce are immense, not to mention the toll on overall happiness and well-being. Just how high are these costs?

• Legal fees alone can range from $15,000 to $30,000 on average, depending on the complexity of the case. However, this is just the tip of the iceberg when it comes to the financial impact.
• During a divorce, marital assets are typically divided, often leading to a significant decrease in net worth for both parties. The specific impact varies depending on the division method (equal split vs. equitable distribution), but it's not uncommon for individuals to experience a 20% to 50% reduction in their net worth.
• Moreover, divorced individuals often lose the financial benefits that come from sharing expenses, potentially resulting in a lower standard of living. Maintaining separate residences can increase living expenses by a staggering 30% to 50% due to the duplication of costs that were previously shared, such as housing, utilities, and everyday necessities.

While no relationship is perfect, those who successfully navigate long-term partnerships often do so by focusing on the positives, cherishing shared experiences, and cultivating a deep appreciation for their partner.

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Nurturing the Power of Ownership: Finding Contentment in What You Have

Embracing ownership bias isn't about stubbornly holding onto broken items or unhealthy relationships. If something is genuinely beyond repair or detrimental to your well-being, it's essential to let it go and move forward. However, consciously appreciating the value in what you already possess and finding ways to maximize its potential can have a profound impact on your life, both spiritually and financially. It encourages a mindset shift from constant acquisition to mindful appreciation, fostering contentment and reducing unnecessary spending.

Here are some strategies to cultivate this empowering perspective:

• Gratitude Journal: Make it a habit to regularly write down things you're thankful for, including the possessions and relationships that enrich your life. This simple practice can shift your focus towards appreciation and away from feelings of lack.
• Mindful Consumption: Before making any purchase, pause and ask yourself: Do I genuinely need this, or am I merely chasing the fleeting thrill of something new? This conscious approach can help curb impulse buys and promote intentional spending.
• Maintenance and Repair: Take care of your belongings. Regular maintenance and timely repairs can extend the lifespan of your possessions, saving you money in the long run and deepening your connection to them as you invest time and effort in their upkeep.
• Prioritize Experiences: Shift your focus from accumulating material possessions to creating meaningful experiences and memories. Invest in travel, hobbies, and quality time with loved ones – these are the things that truly enrich our lives and bring lasting joy.
• Reframe Your Perspective: Challenge yourself to see the positive aspects of your possessions and relationships. Instead of dwelling on what they lack, appreciate their unique qualities and the role they play in your life. This shift in perspective can foster contentment and gratitude.

By incorporating these strategies into your life, you can gradually cultivate a stronger sense of ownership bias and use it to your advantage. You'll find yourself valuing the things and people you already have, leading to greater financial stability, emotional well-being, and a more fulfilling life overall. Remember, true wealth lies not in the abundance of possessions but in the richness of our experiences and the depth of our connections.

Embrace Financial Stability and Fulfillment with Purpose Built

In a world where the pursuit of the next best thing often takes precedence, embracing ownership bias can be a powerful tool to enhance both your financial stability and overall happiness. By appreciating the value in what you already own—whether it’s a car, a relationship, or a cherished possession—you can break free from the costly cycle of constantly seeking something new. This mindset shift fosters contentment and helps you make more intentional, financially sound decisions.

If you’re looking to build a financial plan that aligns with these principles and supports a more fulfilling life, Purpose Built is here to help. We specialize in creating personalized strategies that emphasize long-term value and financial well-being. Schedule a meeting with us today and start your journey towards a more secure and content future.

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FAQ Section

Q: What is ownership bias, and how does it affect my finances?

‍A: Ownership bias is the tendency to value something more because you own it. By embracing this mindset, you can reduce unnecessary spending and appreciate what you already have, leading to better financial stability.

Q: How can holding onto my car longer save me money?

‍A: Holding onto your car for ten years instead of upgrading every three years can save you money on depreciation, insurance, and other costs, potentially saving you thousands over a decade.

Q: Does ownership bias apply to relationships?

‍A: Yes, ownership bias can also apply to relationships. Valuing long-term partnerships can prevent the emotional and financial costs of seeking novelty in relationships, which often leads to dissatisfaction and divorce.

Q: How can I cultivate a mindset that embraces ownership bias?

‍A: You can cultivate this mindset by practicing gratitude, mindful consumption, maintaining your possessions, and focusing on creating meaningful experiences rather than accumulating material goods.

Q: How can Purpose Built help me apply ownership bias to my financial planning?

‍A: Purpose Built can help you develop a financial plan that emphasizes long-term value and financial well-being, aligning with the principles of ownership bias to support a more fulfilling life.

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About the Author

Sean Lovison, CPA, CFP®, is a flat fee-only financial planner based in Moorestown, New Jersey, serving clients virtually nationwide. After spending 14 years as a corporate chief financial officer (CFO), receiving and designing compensation plans, he decided to help others navigate their plans.

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