Sunday, March 20, 2016

Rule #41 Choose Value over Price

"Price is what you pay. Value is what you get." -Warren Buffet

One thing that has been said to me a few times is: "You can afford it so why don't you buy it?"

My father asks me almost every time I see him about something-or-other he saw on TV.  "I don't have cable Dad, I didn't see it." is what I usually say.  Dad still doesn't quite understand how we can live without cable TV.   We certainly can afford to pay the additional 30-50 bucks for the service, but why should we?  The reason we don't have cable is we focus on value instead of affordability, and we simply don't place much value on TV watching.  We usually only consider the affordability AFTER we've decided there is value in it.  Intuitively, you'd expect everyone to do the same thing, but I'm not so sure.  Using the Cable-TV analogy, how many times have you heard someone say "A bazillion channels and there's nothing on"?  or "I should get rid of cable... I wish I could just cut the cord."  I've heard it said quite a bit.  I've also heard people use the bundling excuse to justify why they have cable:  For an extra $20 a month, we'll add Basic Cable on to your internet-service bill.  Wow! Only $20!  "I didn't really want Cable TV, but this deal is pretty good, so I'll add it on."  Thats $240 a year for something you didn't really want in the first place.  Sure I want a good price, but I want to make sure we're getting good value.  I actually know of families who pay close to $100 A MONTH for a deluxe cable TV package, and still complain that there is nothing on.

Another analogy is the upsizing of portion sizes at a fast-food restaurant.  I've gone to fast food restaurants and ordered a sandwich and fries... For $0.30 more I could have ordered a combo meal and gotten the same foodstuffs with a medium sized pop as well.  But I didn't want a pop.  I know people who will always get the combo because its the better deal.  Its cheaper than if they purchased all of the items individually, so its very tempting to take the deal.  Now $0.30 isn't much money, but its for an additional item that I don't want.  Later in the day, I won't regret not buying it, and my waistline will thank me.

Memberships to the gym or joining clubs where we don't believe we will get the full value of the cost of joining are another example of things we wont buy.  If there is an a-la-carte option, we will typically take that one until we know for sure we will get good value for our money.  If I am only going to go to the gym 2 times a month, then it likely makes no sense for me to pay the monthly rate, especially if I would have make a 1 year commitment, which many gyms require.

TVs, electronics, new vehicles, dinners out are all things we could afford to do more of, but we place little value on these things, so we just dont spend our money that way.  It results in us having more disposable income and have more freedom and flexibility with our money.  Its one more way of not keeping up with the Joneses.

Thats not to say we don't spend money on things, or experiences that enrich our lives.  We try to buy things that are of high quality and will last a long time.  Because of this, we often spend more up front in order to have quality that lasts longer and requires less maintenance.  This ensures that we don't have to replace things prematurely either because of malfunction or it goes out of style.  We recently bought a $2000 couch.  It was regularly $3000 and was on sale for $2000.  The couch is made with high quality and durable leather that will last a long time.  While $2000 is still a lot of money to spend on a piece of furniture, we have two young sons who are hard on furniture.  By spending more on a quality couch, we hope to avoid having to replace that couch every few years.

Buying cheap and disposable things just isnt our style, and financially we feel it a wasteful way to spend our hard earned money.  While there are a lot of things that we can afford, we are very picky on what we are prepared to buy.

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