Sometimes changing the criteria by which we assess the cast of a purchase can save us a lot of money. I like to use the trick of calculating the ‘Cost Per’ to see how much something will really cost. My favorite calculations are usually cost per use and cost per year, but the calculations can be modified to evaluate any type of purchase. $12 dollars per bottle of vitamins or 8 cents a capsule? $100 a year for the HashiTashi brand TV, or $50 a year for a Sony that lasts 10 years?
Let’s closely examine how we would use cost per year to evaluate the better buy on a new bedroom set. One bedroom set can be bought at IKEA for about $1200, while a second set costs $4,000 dollars at a high end furniture store. You like both sets equally, how do you decide which to buy?
On the surface the $1200 looks like a much better deal. We might arrive at a different conclusion if figure out cost per year. The $1200 set will last about ten years if you are lucky, for a cost of $120 per year. The $3,800 has the potential to last 40 years and be passed on to your children or friends, for a cost of $95 dollars a year. Now the more expensive outlay doesn’t hurt near as much.
Now the final deciding factors will probably need to account for many other factors too. Do you like to change you room designs often? Do you like to have heirlooms to pass down to your children? Do you take good care of your stuff? Don’t have the cash? All these types of questions will also factor into your decision too? After all, that is why finance is personal.
The main point is that sometimes changing the perspective through which we view purchases can often change how we feel about spending the money. Using the ‘Cost Per’ calculation is a great way to gain some new perspective. This new perspective can often lead to gems like “buying the cheaper item doesn’t always save you money”. When you factor in the need replace the item more frequently and the hassle of dealing with an inferior product, the cheaper item costs more.