Before you decide to get that next latest and greatest product or service, or even one that’s been around for ages, it is important to assess its personal value to you relative to its actual price. This is especially important on limited income because it allows you to purchase the products and services which will give you the most personal value.
However, whether you are well below the poverty line or living comfortably, it’s still important to make sure you’re not wasting precious funds on things that are of little practical value. Then you can put your money into things that have more meaning for you personally, for example a college fund for your child or a retirement fund for yourself.
What is meant by personal value? It is simply how much that product or service means to you, and to what degree you want or need it in your life. I’ll use television for an example. Let’s say television service costs $40/month. If you’re a person who only watches about 1 hour of television per week, and you don’t even consider that something you really must do, then television service may have a much lower personal value to you. If you had to associate a dollar amount with its personal value for example, it might only be $5 to $10. Well, if television costs $40 per month, you would then be paying quadruple its value to you.
Thinking on those terms, you can rule this service out of being extremely important, and focus on higher value ones first. However, if you sit around and watch television for a few hours every day after work, and use it to wind down from a stressful day, you may even assess the personal value of the television service as much higher than it costs. Let’s say you put a figure on it of about $100. In that case, the television service costs less than half the value you associate with it, and is a great deal. For you, it would probably be a great idea to get this service as it provides much needed entertainment and stress relief.
Of course there is no need to actually put a dollar amount to the value of a product or service unless it helps you put it into perspective, but the idea is to ask yourself how much it actually means to you and if knowing that it would be a good value or not.
This could also change if you have multiple people in the house. For example, if you are the person who assesses the personal value of the television service at $10/month and determine it’s not a good deal for you, but then you move in with someone who watches much more television and assesses the value for themselves at $30 or more, then it would be a good idea to compromise and get the service. The reverse could also apply if they place low value on something you give high value to. For them alone it might not be worth it but for both of you it is.
The key in all this is to think critically about how much money you have, how much a product or service costs, how much use you would get out of it, and how much that use is worth. Even something you rarely use can be considered more highly valued if that use meets a need when it is utilized.
Always remember to carefully consider the value of things as well as their price to see if they are really worth it. You don’t have to go into all the detail that I did on my example, but you should train yourself to analyze these things in your head at least before making impulsive purchases.
This would also help you in understanding where to compromise with other household members. Always remember that different people value things differently and keep your mind open to such differences even if you do not agree with them. Prices of products and services may be fixed, but their value is not, and it is always possible to be flexible and adjust your personal values from time to time and depending on circumstances. This is an important way to manage your finances and ensure that you are spending the money that you have on the things that are important to you and your family.
It is extremely easy to become in impulse buyer, but if you train your brain properly, it is equally as easy to break from impulse buying and be a very smart shopper. Smart shoppers are actually in the minority, and businesses take advantage of that fact, but if you carefully consider your purchases before you make them, you can avoid falling into impulse buyer traps.
Also always remember that while it may not cost any money to save money, this can have a high personal value as well, so whenever possible, consider putting money away to save and forgetting it is even there so you are not tempted to spend it and it doesn’t burn a hole in your pocket. Money is not an unlimited commodity, and you won’t always get the same amount of it all your life, so preparing for any eventuality is always a good practice, no matter what your financial situation.
What methods do you use for determining whether a purchase is worthwhile or not? How do you decide whether or not to eliminate a service or sell a product when things get tough? I’ve always been pretty good with money management, but I would be curious to know what other people think.
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