So many wants, so little money. How do you determine whether something is truly worth paying for?
Words by Budget Babe
There have been a lot of critics and haters alike on my viral post of how I saved $20,000 in a year on $2,500 a month, where many chastised me for being cheap, not spending enough, etc. But there is a huge difference between being cheap and being frugal. Contrary to what some people may think, Budget Babe does indeed spend on certain stuff.
So today, I wanted to share a little more on my #1 philosophy and mindset towards saving that really helped me chalk up that $20,000. Contrary to what you may think, it is not about having a fixed budget or saving huge chunks of money.
[Free Ebook] How should you invest your first $20,000?
We asked 14 Singapore finance bloggers to share what they would do if they could go back in time and invest their first $20,000. They can no longer rewind time, but you can learn from their experience and hopefully start with a better footing.
It is about saving all the little excesses that accumulate over time to become quite a sum.
It is about being smart on what you spend on.
Introducing: UTILITY COST
Disclaimer: I came up with this concept since young, when money started becoming a problem for my family. While I don’t think this concept is new (surely someone else has pioneered this before!), it might perhaps go by another name? If someone knows about this, please tell me!
When I spend, I don’t just look at price. Sure, cheap prices will entice me, but they are not the defining factor in my decision of whether to spend or skip. Instead, I try to think about the practicalities of buying that item.
If we look at price alone, it will never be a good gauge. After all, if something is expensive, there must be a reason for it. However, it is up to us to discern the reason behind the price, and decide if it is something that we find worthy to be paying for.
Some reasons why things are expensive:
1. High advertising / branding costs
In building a brand and its image, companies often spend huge marketing dollars on publicity and promotion. As a result, they have to mark up the price of their goods in order to earn back those costs. (I’ve personally seen and dealt with brands’ marketing budgets, and they’re not small sums.)
For instance, have you ever wondered why Victoria’s Secret lingerie are so expensive? Fans will argue it is due to good quality materials and fashionable designs, but I personally don’t believe in those reasons. I own two bras from Victoria’s Secret, and they’re not any more comfortable / trendy / longer-lasting than some of my other bras from less-expensive brands. But hey, do you know Victoria’s Secret spends millions of dollars each year to produce their fashion shows, hire their Victoria’s Secret “angels”, engage high-profile entertainment acts (Taylor Swift sang for them once), food and drinks, event set-up, videography, etc…
That’s why I don’t believe in paying $70 to $100+++ for a Victoria’s Secret bra, because I suspect maybe as much as $60 goes towards paying for such branding and advertising fees. The real cost of the bra (material + design + labour) is probably much lesser.
2. Limited edition / trends
I suppose everyone is familiar with economies of scale. When certain things are made in limited quantities, economies of scale might drop. For instance, a special range in collaboration with a top-notch designer usually has limited pieces produced. Since demand thus exceeds supply, prices tend to be higher for those who want to own them.
Similarly, there is a price to pay for popularity.
3. Customised / handmade
Such artisan products usually charge more due to their business nature that requires long hours of service and skill to produce each batch of products. They also tend to be limited in quantity and usually more unique, which can justify their high prices.
Uniqlo is a good example of this. They sell comfortable and trendy basics, which are classic wardrobe staples and can be worn in many different ways.
Imagine if you bought one of their camisoles for $19, which you wear every week because it’s so darn versatile. Wear it with a blazer and smart pants for work, a long skirt for going out, a short skirt for clubbing, or shorts for running. Imagine it lasts for 2 years before the colour fades recognisably after 104 uses (once a week). This is equivalent to paying 18 cents for each time you wore it out.
Compare this to that fancy gown you bought for $599 to wear to your cousin’s wedding two years ago, which has been sitting in your wardrobe ever since.
Which makes more sense?
Things worth paying for are those that are made from better ingredients or materials, as they tend to also last far longer. It is always better to pay for an expensive appliance that can last for ages, rather than a cheap one that breaks down every few months (requiring you to either spend on repair fees, or buy a new replacement).
My friend’s mother bought a good quality toaster for $100 – one of the more expensive versions 20 years ago – which has lasted her well until today! My mother, on the other hand, bought a relatively slightly cheaper model for about $70…and it broke down after 5 years. It couldn’t be fixed, so a replacement was the only solution.
Who made the better choice?
The next time before you buy something, think about the item in terms of its utility cost.
How often will you wear it?
How often will you use it?
How long will it last you?
Due to the materialistic culture we live in, we tend to buy too much into branding and advertising these days, which is why costs are going higher and higher. It doesn’t have to be. While we cannot escape from inflation and rising prices of necessities, there are many other things that we don’t have to necessarily pay for. Trends, external packaging (which you throw away after opening the item) and advertising are generally things I don’t believe in paying for.
How can I calculate utility cost?
I’ve given you the mathematical formula I occasionally use, but it doesn’t always have to be a specific figure. Instead, think in general terms of how often you reckon you would use it, and then decide if the price is worth that.
In other words,
It is NOT about paying for the lowest price, but about paying for value.
It is NOT about paying for trends, but paying for the number of times you will wear them.
It is NOT about buying the cheapest item, but about paying for the item that will last you the longest or break down the least often.
Try looking beyond the price and at value instead, and you’ll start to make better spending decisions, leaving you with more money to save.
Give this a try and let me know how it goes. Good luck!
This article originally appeared on Budget Babe’s blog and has been republished here with permission.