Monday, August 29, 2011

On Price and Value

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Is $3.99 for two tiny jars of "Smart Balance" buttery spread too expensive? What about if you have a heart disease and using this particular buttery spread may help your heart and even save your life? Not as expensive now. What many people don't think about is that there is a huge difference between price and value.

To distinguish the two, let's put it this way: price is the money you pay for a product or a service, whereas value is how important it is for you to get this particular product or service at this place for the price they offer. For instance, you want to buy a bottle of Absolut in a liquor store. In liquor store A, it costs you $35 and in liquor store B you will have to pay $28 for the same bottle. The value is the same (both are bottles of Absolut), but the prices are different. Now, imagine that it's raining, and the liquor store B is about 12 blocks from your house, while the liquor store A is right around the corner. Now the $35 bottle has more value for you because it saves you the trouble of walking a few extra blocks in the pouring rain.

For that reason, not everything that has a high price tag is really expensive. Sometimes it's a matter of whether or not we need the product. There's also a huge difference between "want" and "need." If Maria has 20 pairs of sandals and she is going to get a new one, she wants new sandals. On the other hand, if it's summer and all Lucy has are closed toe shoes, she knows she needs sandals; otherwise, she will be feeling too hot. The things that you want have less value than products or services you need, even though you may spend the same amount of money on both categories.

Therefore, if you realize that you have a problem managing your budget, you should make a clear line between price and value and your wants and needs. Many of the things we buy are not necessary, but they make us feel good, while without other things we would not have been able to get by. All the problems appear when we buy things we want instead of the products or services we need. If you spend all your money on new clothes and at the end of the month you have no money to pay rent, this means that you need to plan your budget in a different way.

And finally, since value and price are different notions, being cheap and saving are words from different worlds as well. If you know you don't care what kind of bread you buy and you can get "Wonderbread" cheaper than "Arnold," go for "Wonderbread." This will leave you more money at the end of the month to buy things you want. However, if your heart health depends on that tiny jar of "Smart Balance," there is absolutely no question about whether or not you should get that instead of cheaper and unhealthier for you regular butter sticks.

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