I find purchasing decisions easier when I think about them like this: which would you rather have, the second house, or the first house plus a two-week luxury vacation

House is probably a poor example here, since it's generally paid over the length of a mortgage. $35,000 overall, divided by 12 payments per month, divided by say 20 years = $145/month. So would I rather $145/month, or the small amount of joy that the slightly nicer house will bring me in that same time frame? I could see that joy being the best deal for one's dollar. I've spent $200/month to increase the quality of my apartment before, to great benefit.

(All that said, I still agree that most people don't actually do the math, and may well be better off spending that $145 on other things :))