Wednesday, August 26, 2009

*Value* I Wouldn't Pay For..

As an up-front disclaimer here, I'll say I have absolutely no stock or other investment of any kind in hotels.com.

That said, I'm out of town for a friend's wedding right now and staying at the Ritz-Carlton in San Francisco, completely thanks to a promotion run by hotels.com, whereby any 10 nights that you stay ANYWHERE earn you 1 free night ANYWHERE else. So, let's say you travel for work a bit and you happen to stay at sub-one star hotels for $40 a pop. 10 of those gets you into the Ritz. Do it enought times and you can make it your home for your super-long weekend mini-vacation.

I've been looking forward to the trip for quite some time, and so far it's been great. One quick observation I'd share for anyone who cares to know, or is planning a trip just about anywhere, however, is that I would never in my right mind pay the market price for this hotel room.

If you're visiting San Francisco, there are tons of options right in the heart of things that have perfectly adequate beds, TVs, and bathrooms, but would cost you less than a hundred bucks. Add that up over the course of a multi-night stay, factor in the absurdly high hotel taxes you're going to incur as a percentage of your bill, and then consider that the sign of a great trip is probably how little time you spend cooped up inside your room, and it just seems crazy to drop the extra several hundy on a five star hotel.

I know there's no shortage of financial planning books out there that can give you sage advice about how your daily $5 latte habit is really costing you $482,281, when calculated as money that didn't make it into your Roth IRA, and therefore didn't earn magnificent returns with dividends over four decades of tax-free growth.

I also know you could get hit by a bus tomorrow, and you might really enjoy that latte today. It also might improve your productivity, or bring you utility for the here and now in some other way. If I were ever writing a personal finance book, I wouldn't be filling it with a lot of thou-shalt-nots about lattes and Chinese take-out.

But having seen the inside of some perfectly adequate $40 rooms, and now having seen the inside of a marginally more adequate $400 room, I'm not seeing a whole lot of difference.

I won't look a gift horse in the mouth and wouldn't pass up a free five-star opportunity in the future...but now I also know there's nothing about such a place that would justify dropping half a paycheck for a few nights' stay.

4 comments:

Clifford said...

This is probably a separate discussion -- but the $400 hotel room goes a long way to explaining why so many rich people feel poor.

I remember when I was working at Sony, and the head of the division was fired. The guy had made $2 million a year, owned a house in the Palisades, and had three kids in Harvard Westlake, the best private school in the city. I happened to sit next to him at a restaurant one day, and he was saying how worried he was financially for the future -- sure, he had saved, had a portfolio, etc., but his living expenses were just so high -- after all, he had the Palisades mortgage, the kids in school, etc.

What I learned is that rich people aren't as rich as you think -- sure they might be making ten times as much as you, but they're also staying in hotel rooms ten times as expensive.

--blogel

The New Englander said...

Blogel,

Good points...at first, I admit, my reaction is to say "okay, cry me a river...anyone making that kind of money CAN'T have financial problems"..but then again I could write about my own coming situation (call it quasi-employed), and there are literally billions of people in the world who'd think I was crazy to complain about what I have. I'll admit that it is all relative.

I still wonder about those types of incomes, though...even after taxes, you'd think there's enough there that if it was put in the right places, wisely invested, etc. someone could really buy himself a lot of security. I guess the problem is that people don't always plan -- the lifestyle would suddenly be unsustainable if he took a big income hit or lost his job outright.

But to give a recent example with personal pertinence, look at something like a fly-to wedding. If you were a Wall Street bigshot making half a million, flying across the country for a buddy's wedding might be just .2% of your annual gross, but if you were someone in the mid- to high-five figure range, you're dropping a significant percentage of your annual take home (say, 1.75%) if you decide to go.

I'm willing to stay open-minded, but I'd still have to say that on all these fixed-cost sort of things, it's better to have more income (even with the higher taxes and higher standard/cost of living).

Either way, thanks for putting that out there..it's worth considering everytime someone makes an assumption about all the people in such-and-such a tax bracket or ZIP code..

best,
gp

Jon and Kate said...

Well, I did read a paper from the Federal Reserve in college that argued the rich do not have a higher saving percentage than other economic classes. Obviously anyone would rather be rich, but my point is that there isn't necessarily such a thing as a fixed cost. If you're making half a mil, you might choose to fly first class, stay at a five star hotel, etc. -- because a) you're rich, why not and b) it's the same percentage of income you were spending on coach when you were making $50k a year.

It does lead to a bit of "poor little rich guy" but it does help explain why savings rates are pretty consistent once you move from the middle class on up.

The New Englander said...

JK,

Thanks for mentioning the Fed study. I will try to look for it..a friend of mine studies behavioral finance/econ for a living so I'm always trying to throw interesting stuff like this his way..(I keep trying to get him to research those deals airlines offer people when they oversell flights, for instance).

best,
gp