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As the national average of gas prices drop back to the $3.50 a gallon range, no one seems to worry about the ultra high gas price anymore.  It’s vanished from the nightly news, missing from blog articles and forgotten over lunchroom conversations.  After all, gas is not $4 a gallon anymore so no problems right?

Same thing is happening with the housing prices.  Emma and I looked at a house that cost $729,000 to buy before.  When it went down to $599,000 recently, it seemed such a bargain!  If we buy now, we saved $130,000 in a year and a half!

What about that sales event at your favorite department store?  That pair of sunglasses looks great on you and instead of the original price of $350, it’s discounted to be $200!  Wow!

Sometimes, our perception seems to trick us into thinking the wrong way about savings and spending.  We seem to forget that gas prices used to be $2.80 a gallon 12 months ago, that comparable homes used to cost $300,000 and buying sunglasses is spending money and not saving money.  We fall into the trap of brilliant marketers who understand human behavior.  We end up spending money and not saving.  We end up depleting our emergency funds, taking loans from our retirement funds and spending it on flat screen TVs and home remodeling.  We end up delaying the one thing we wanted most, financial freedom.

What Should We Do?

In order to save more money, we first have to acknowledge that it is natural for our perception to work against us.  Once we recognize this, we can better spot the situation.  We can then start focusing on telling ourselves that we are actually spending more money when we buy that pair of sunglasses, and that it’s nowhere near the point where we can splurge again when gas prices dropped to $3.50.

It is at these critical moments of our lives where our decisions can make a huge difference to our financial health.  It is these times where the frugal ones can truly distinguish themselves from the rest of us.  It is at these times where good decisions will lead to much faster wealth accumulation than would otherwise be possible.

It is at this time that you should decide what you should do.  The answer should be obvious.