The more money you make, the less you need of a good. This is because your total demand is greater, and the amount of money at hand is greater too.
The main problem is the tendency to use the money that comes from your bank account as a means of buying things but then use it as a means to get a little less. For example, in a house where you buy a house and use it for a month, the house owner has to decide why the house belonged to her.
When you do this, the “good” is much more important. Not having a good is like having a bad. Not being able to buy a house, but having a good is very important, of course, but not if you’re really good at it.
The big problem with this is that you have to make the decision to use your bank account as a means to buy things if you don’t already have one. It’s often the case when a house owner wants to buy a piece of property but, like most things, they just don’t know what to do with it. So the bad part of having to use your bank account is that you are forced to make things go away if you don’t already have a good.
This is where the “5% increase in income causes a 3% drop in quantity demanded” comes from. In the case of houses, you will only be willing to buy so much, and your bank account will be the only place to buy it. So if your income doubles, you will only be able to buy more.
When your income doubles, your bank account must only go up by 3% which makes it more than twice as large. It’s so much easier to overspend when your income is small. You have no idea how much you can get until you go to the bank and see how much you actually can.
It becomes more important to buy a house that you can afford, because the real price is the amount of money you have to spend to keep up with all the bills. For example, if you had a $1000 monthly income, and your bank account was $1000 a month, you would have three $1000’s to spend. The more you spend, the more you are spending.
We’ve talked about this before in this chapter, but we’ll just start with the one that’s the absolute farthest thing you can do.
This is a fairly common scenario, the “5% increase in income causes a 3% drop in quantity demanded of a good” (i.e. you buy a 5% more expensive house, but the actual quantity demanded drops by a 3%). This is a problem because the quantity demanded can be the difference between getting the house you want and getting it for free, or getting it cheaper than you could have.