One of the simple unavoidable facts of life is that everything costs money. It can be frustrating spending your entire paycheck week after week with little to nothing to show for it. Learning to understand cost vs. value will help you get the most for your weekly checks and make the most of your personal finances.
Cost is simple to understand. How much money are you going to have to spend for this item? This is the cost. Value on the other hand is a little more complex. Value can come from many different places. These three key ideas will help you master the art of determining if the cost of an item is equal to or lower than the value.
Cost, Value and Where You Live
Think about your house or apartment for a minute. Do you live in the cheapest part of town? Why or why not? The answer to this question is one of the building blocks for understanding cost vs. value. Sure, you could probably crash on your mom’s sofa for free but having somewhere else to live has a value. You may be willing to pay more for a smaller apartment in a good neighborhood. Use this reasoning to guide all of your purchases. A reliable car has a higher value than one that always breaks down.
A Premium for Convenience
A candy bar or a bottle of soda is more expensive at the gas station than the grocery store. Why is this? Gas stations and other locations charge a premium for convenience. Is a gas station candy bar worth more than one from the store? They have the same ingredients, the same nuts, the same chocolate, even the same package. The value doesn’t really change but the cost does. Learn to plan ahead and to ask yourself how to get the best value for your money.
Is This Actually Worth It?
Next time you go to make a purchase ask yourself, “Is this actually worth it?” Is the cost of the item relative to the actual value? As you learn to do this you will be able to start differentiating the cost of an item and its value. In an ideal situation the cost will always be lower than the value received.
A great way to start mastering this skill is to determine the value of an item before you see the price. If you are considering purchasing a new item, look at it first. What do you think it is worth? Then look at the price and see how they compare. This can be done with almost any product from shirts to pants to electronic devices.
What do you think?