Money Basics Part 8: Value vs. Price

A friend recently had an issue arise on a work trip that illustrated the difference between value and price. Let’s call him Aloysius. Aloysius was booking the cheapest hotels he could find, without reading any reviews online. One of those said reviews literally had a photo of a rat in the swimming pool. Unfortunately he was booking for ALL the coworkers. My friend ended up with a roach in her room, and who knows what other horrors.

I don’t ever stay somewhere fancy like the Hilton. There’s just no point to me, but I don’t look for the cheapest place available. We live in an age of information, so do your research online, and find a decent place at a reasonable price. Aloysius was only looking at the bottom line, and not considering other factors. If he had put me in a roachy room, I would have come completely unglued, and rained curses on him and his descendants, for eight generations.

Let’s take a more concrete example. You want a new stereo (is that what the kids are buying these days?), so you comparison shop your heart out and buy the cheapest thing available. It breaks in six months, and of course there’s no warranty, and it’s too late to return it to the store. Well you might as well have thrown that money in the garbage, which is all you can do with your cheap stereo.

Part of being frugal is getting the most bang for your buck. You want the things you buy to last as long as possible. There are several different ways to judge value:

1) Larger quantity – this one is pretty basic. Buying in bulk can reap huge savings (always do your math and comparison shop, though). Besides, I take comfort in knowing I have enough toilet paper for the next 5 years stored away, and I got a good deal on it.  

2)Better quality – when you’re buying a car, for example, you want something that will last, hold its value, and not break down frequently. You could buy a really cheap clunker, and then spend thousands on repairs, insurance, and gas, or just buy a less junky car, and have something more reliable. Of course, as with any purchase, do your research, and if you’re a mechanic, you use the example of…buying a purse.

Or with the hotel room example, you won’t end up sleeping with the lights on, and bringing bed bugs home with you.

3) You like it more – let’s say you need a new belt. You’ve done all your comparison shopping, and it comes down to two choices, a brown snakeskin-style belt, and a normal brown leather belt. The snakeskin one is on sale, but it’s just not quite right. You prefer the smooth finish on the other belt that costs a few bucks more. Will you wear the smooth one more? If you buy the snakeskin, will you be right back here in a couple months because you hate it? Only you can decide that, and your preferences are obviously important. Just don’t use that as an excuse to go buy a Lexus instead of a Toyota (FYI: they’re both Toyotas; one just costs way more).

Keep in mind that just because something costs more does not mean it’s a better value. I know someone with a Mercedes the same year as my Honda, and he’s had just as many (and more expensive!) repairs on his vehicle. For big purchases especially, always do your research, and weigh the costs and benefits.

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March 23, 2014. Tags: , , , , . Thriftiness is Cool.

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