Posted by Lending Club :: March 17, 2008 @ 5:37 am

I recently heard a story about a college professor who regularly invites some of his favorite students over for a discussion and a social experiment. This story may not have actually happened, but it can teach us a financial lesson in any event.

The professor tells the students to help themselves to the coffee that he has prepared. He has placed a wide array of coffee mugs out as well, of greatly varying degrees of quality. After all of the students have their coffee, the discussion begins. The professor remarks on how all of the finest mugs were chosen first and that no one ended up taking any of the poorest quality ones. He explains that all mugs serve the same purpose, to hold the coffee. The coffee, which is the true product, tastes just as good from even the poorest quality of mugs.

This lesson can easily be applied to our financial lives. In what ways do we focus our desires on objects that are utilitarian and add no value to fulfilling our need? We may find ourselves slipping deeper into debt as a result of this pattern. Sure, you can consolidate your debt with a P2P loan from Lending Club, but you also have to identify the cause of your debt to prevent it from reoccurring.

An example might be the type of car you choose to purchase. All cars, even the most modest, satisfy our main reason for owning them: transportation. Clearly, other factors such as family size, safety record, and fuel economy play critical roles in the choice of car we purchase as well. How often though, do we let other factors, that don't contribute to the need we are trying to meet, affect our decisions. Personal preference and comfort are probably ok, but when we start thinking of the social status associated with the car, this is where we get into trouble. It's at this point, when we begin to put more value into non-essentials, that our control of our finances starts to slip away.

Other examples in our daily lives abound. The point isn't to limit the luxuries that we allow ourselves to enjoy. It is simply a way to help focus our finances on meeting all of our needs first, before allowing the wants to come into play. When you are trying to cut back on your spending, look for those areas of your life where you money is going towards the expensive mug. Diverting that money back to the coffees of your life can have a significant positive effect.