Understanding the Difference Between Price and Value
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My husband and I talk about money time to time as we become more aware of how we can use it as a tool for our goals.
Last time I mentioned how we and our friends spend money differently, but for the same reasons. What and how we spend money on can give a glimpse of what we value.
Easy to Judge Others on Finances
It can be easy for us to make snap judgement on the spending of others, but we're not seeing the whole picture. I was catching a post from I Will Teach You to Be Rich and come across this quote that struck a chord.
We look at others’ spending and deride it as frivolous and unnecessary, yet we use cognitive dissonance and other mechanisms to justify our own spending. And we’d never expose our spending to the light of outside scrutiny.
When we see a friend buy that complete DVD set of their favorite TV series, we look at the price and say that's too expensive. We'd never buy something overpriced and frivolous like that, right? I think part of the problem comes from not appreciate the difference between the price of something and the value of something.
We'd never buy something overpriced and frivolous like that, right? I think part of the problem comes from not appreciate the difference between the price of something and the value of something.
The Difference Between Price and Value
Each of us has loved ones, hobbies, and things that can bring us some joy. People may argue that objects can't bring you happiness, but if you love photography and want to be a great photographer, having a high-quality camera can enhance your experience.
It's probably not your source of joy, but it's something that you value.
You might have a friend, though, that thinks that spending $949 on a camera is insane, but they only see the price.
You may feel that their DVD set for $400 is just absurd. Value does not equal price and vice versa. You or your friends can have less expensive hobbies that bring them a huge amount of enjoyment. Their hobby isn't necessarily better than yours.
Dealing with Only Part of the Picture
Besides not understanding how much your friends value a purchase, you simply don't have the information you need to see if they are making a smart decision.
With many people, you just don't know what your friends can or can't afford unless they share the numbers with you. Unless they are complaining about drowning in credit card debt, you may be completely off the mark on their budgeting skills.
Don't be a personal finance bully with your friends.
Your Thoughts on Spending and Personal Finances
I really believe that besides the basics of food, shelter, and clothing, much of personal finance is personal. How we get out of debt or how we save for future goals is a decision we have to make as individuals, as
How we get out of debt or how we save for future goals is a decision we have to make as individuals, as couple, and as families.
How about you? What do you find yourself spending money on? Why?
Photo Credit: Claudio.Ar
Good topic. For a lot of things, I’ve stopped thinking in terms of price. Clothes and guitar for example. I went LESS clutter, and more high value, high quality items.
I really hate clutter with a passion. I’d rather have one $2,000 Martin guitar, than 3 $700 mediocre ones for example.
Focus on value, always!
Great post! I completely agree with you about personal finance being personal – we tend to express our mental, emotional, and spiritual states of being through our use of money.
On the value vs. price discussion, I find it takes some great restraint sometimes to remind myself that how my friends or family use money need not be compared with how I use money. Now, I don’t say that to justify poor purchasing decisions (for myself, or for them), but I do say it because living life in a constant state of comparing myself to others is pretty stressful.
Oh, and I’ve been that personal finance bully – no one likes those guys!
Thanks for the post!
@FS: I’m moving away from the price conscious college student mentality and I’m looking at the value of something before I purchase it.
@Derek: I’m with you- keeping with the Joneses is stressful and unproductive. I think if you want to help someone, the best thing you can do is lead by example. If they ask, I’m all for giving example of what worked and what didn’t. I learned the hard way that being just giving the advice doesn’t go over well.