Would you rather earn $50,000 a year while other people make $25,000, or would you rather earn $100,000 a year while other people get $250,000? Assume for the moment that prices of goods and services will stay the same.

This question has been asked by researchers in the past, and the answer is always astonishing. An LA Times article explored this phenomenon and further described other weird ways that people think about money.

For example, looking at the above question, it seems only rational that people would want to earn $100,000, right? I mean, that’s twice as much as $50,000, and if prices are the same, that means your absolute standard of living will be twice as high!

However, research has shown that most people will choose the opposing option: They would rather earn $50,000 as long as they are making more than other people. Their absolute standard of living isn't important to them--only their comparative standard. Rationally, this doesn't make sense, but humans aren't always rational.

Another situation described in the article involves the following question:

Would you rather be A or B?

A is waiting in line at a movie theater. When he gets to the ticket window, he is told that as he is the 100,000th customer of the theater, he has just won $100.

B is waiting in line at a different theater. The man in front of him wins $1,000 for being the 1-millionth customer of the theater. Mr. B wins $150.

People are willing to lose $50 just to avoid having the person in front win more money than they do.

The article continues on to give an evolutionary explanation for why people prefer to think comparatively rather than absolutely. Regardless of the reasoning, it still shows that financial thinking is not always rational. It also explains why some people will go bankrupt just to be able to show off their house or car. It reminds me of one of my best friends, whose aunt and uncle were going bankrupt and were about to lose their house but continued buying expensive furniture so that they could show it off to their relatives.

The thing that scared me the most was that I wasn't sure of my answer to the two questions above. I'm not even sure how rational a consumer I am. How rational are you?

When it comes to gifts, they say it’s the thought that counts. From a personal perspective, I certainly believe that. I have a hard time when people ask me for gift ideas. Perhaps it’s my frugal nature, or the fact that I’ve budgeted for desired purchases, but there isn’t much that I really want.

As I’ve mentioned in the past, it often takes depriving myself of a planned purchase to come up with a gift idea. So I may continue to wear sneakers in need of replacement, just so that someone will be able to get me something that I really need. I guess that means that I often try to offer needed items to would be gift givers instead of wanted items. Again, this returns to the fact that I live a simple life and don’t really have any wants. If I don’t give a suggestion, that doesn’t mean I’ll get something I don’t like, it just tends to be something that I wouldn’t have spent my money on.

So gifts that I receive either fulfill a need that I’ve been depriving myself of, or they get me something that I wouldn’t have spent money on to begin with. In this way, either gift is somewhat of a waste. As a result of this line of thinking, everyone in my family has begun spending less on “stuff” as gifts, and more on the gift of ourselves. We do this by spending money to travel to see each other, to eat well during the visit, and get prints made of the digital pictures we take. Most purchases wear out over time, but the memories we make endure.

It’s easy to get caught up in the pattern of buying more and more lavish gifts for one another to outdo what we’ve done in the past. It seems to me that a gift twice as expensive isn’t necessarily twice as good. If credit card debt mounts to pay for such extravagance, then the value added diminishes even more.

By giving successively more thoughtful gifts, while reducing the amount spent, you can make the transition more smoothly. Once you make the decision to curtail spending on gift giving, you can make small steps to reach your personal finance goals.

It's not just gas prices anymore that are out of control...

With banks' lending divisions struggling across the country, many banks are looking to bump their bread and butter: fees.

Across the pond in the UK, the average overdraft fee is an outrageous $57, and it might be only a matter of time before higher fees hit the US. British consumers are fighting back, launching lawsuits against the top 5 banks in Britain. Some $810 million was refunded to British customers in the first half of 2007 because of the litigation. Will lawsuits soon be coming to the US?

US consumers paid $38 billion in bank fees in 2007 alone. $38 billion!

Here's 5 ways to beat bank fees (or at least avoid them!):

1. Keep a cushion

Try to keep a cushion in your checking account. You don't need a $10,000 cushion, but keep a little extra in your checking account and pretend it's not even there. You'll lose a little in interest, but could save yourself big in the overdraft fee department.

2. Pick up the phone

By picking up the phone and calling your bank's customer service line you can often get fees waived. Be nice and ask politely to have the fee removed. More often than not, many banks would rather keep you as a customer than lose you over a $34 fee.

You might have to repeat your fee waiver request twice. The first time most customer service reps will tell you they can't waive fees. Ask politely again, and after a trip "to ask my supervisor" you'll probably get the fee waived.

3. Limit your accounts

Do you really need 4 types of accounts at your bank? Some accounts have monthly maintenance fees that apply if you don't keep a certain balance or hit other requirements. Look closely at your accounts and see if you might be better off switching within the bank. Go into a branch and talk with a banker about the best options for your financial situation.

4. Settle for half

If you have a few hundred dollars in fees (i.e., you kept using your debit card for days after the balance was below zero), you're normally not going to get them all waived. What you can do is ask your bank to split the difference.

I once had over $400 in overdraft fees (long story), and my bank agreed to waive half of them to keep my account. The last thing the bank wants is an overdrafted-into-oblivion account. Ask if they will split the fee in half and you'll have at least some success.

5. Consider a credit union

Many credit unions have established extensive no-fee ATM networks these days. Check out your local credit unions and see if making that switch makes sense for your situation.

Source: BusinessWeek.com

Fear is a powerful motivator, but it doesn’t always lead us in the right direction. Those afraid to look poor may try to overcompensate and cause themselves to end up in the exact situation they are trying to avoid.

While it may sound like trying to look rich, trying to not look poor is somewhat different. That difference can be seen more clearly when considering a related comparison: trying to look better than those around you versus trying not to look worse. A fear of looking poor doesn’t necessarily mean that you’re living an extravagant lifestyle. Nonetheless, it may indicate that you are living beyond your means. This article offers a few questions to see if you fit the profile:

1. Does wearing cheap clothes make you queasy?
2. Are you embarrassed to use coupons?
3. Do you feel judged by your décor?
4. Have you made a purchase to impress someone?

The irony is that many times it’s the people who appear to be struggling financially who are actually getting ahead. Living within your means is rarely flashy, but it does have its rewards. Wearing cheap clothes, using coupons, and not caring about what other people think are all good ways to get ahead financially. Delaying gratification not only makes it feel better, but it often allows it to come in larger quantities.

There are many reasons why we spend beyond our means. For some, it’s not having a budget which leads to overspending without realizing it. For others it’s a desire to have a better lifestyle than can truly be afforded. Just as there are many ways to overspend, so too are there many ways to take back control. From a simple budget to consolidating debt through social lending, the important thing is not the corrective action you take, but rather that you take corrective action.

If you put all of your worldly possessions up for sale, what kind of price do you think you could ask? What if you added in other intangible aspects of your life, such as your hobbies, friends, and job? While this may seem like a purely hypothetical exercise, at least one man is going to soon learn the answer.

On June 22nd, Ian Usher will put his "life" up for sale in a massive online auction. The auction will be winner take all: Ian’s house, vehicles, furniture, clothes; everything he owns. By including equipment from his hobbies (skydiving, kite surfing, etc.), he suggests that his lifestyle is included in the sale as well. Taking things even further, Ian will introduce the winner to his friends and has arranged for a two-week trial at his current job. As he says on his website, which documents his story, after the auction he intends to "walk out of my front door with my wallet in one pocket and my passport in the other, nothing else at all, and get on the train, with no idea where I am going or what the future holds for me.”

While we may not take such drastic measures as Ian to make a change in our lives, we can certainly take something from his method. How much of our wealth is accumulated in “stuff” that can’t bring us happiness? What would our lives be worth if we offered them up for sale?

The point of this exercise is to help us separate the areas of our lives that bring us joy from those that do not. Most people conclude that material possessions are not the source of their happiness. Once you have identified each area, you can work towards increasing the good and decreasing the bad. For some people, that might mean consolidating credit card debt. Others may want to spend more time with friends and family. Ian Usher decided that much more drastic measures were necessary.

Even though most of us would never sell even a portion of our lives away, considering those things that would be the first to go is a useful exercise. Ian believes that everything needs to go from his life to find joy. What needs to go from yours?