Move Monday. My favorite scene from the movie The Pursuit of Happyness
Monday, March 12, 2012
Wednesday, March 7, 2012
WW: Cost
Welcome to Word Wednesday. The word of the week is Cost.
Cost is what is exchanged for something else. This is not always apparent. For instance there is the idea of opportunity cost, which is that the cost of an action is the sum of alternative actions.
Cost also includes the long term affects. For instance, if you buy a car, the price may be $20,000. However the cost of owning a car includes gas, maintenance, insurance, etc. This is usually called the total cost of ownership.
Most people look at the price tag, and ignore the cost completely. Common decision discussions include things like "Can I afford the payments?" or "Do I have enough money to get X?" Those are the wrong questions to ask yourself. We should be asking ourselves if acquiring something fits in with our long term goals.
One example of cost versus price thinking is college. It is so ingrained in our society that when people leave high school they should go to a four year university. However, there is the opportunity cost (lost wages and experience while going to college) and total cost of ownership of a college degree (including interest payments). Ten years ago it was probably worth it to go to college directly out of high school. However, college tuition inflation skyrocketing since 2001, the value of a four (in my case four and a half) year degree has to be evaluated.
Of course our society, when dealing with inflation, turns to debt. College tuition no longer affordable? Finance it. Student loans don't require payments until you graduation (reminds me of the furniture store ads for no interest and no payments for the next N years). But do you receive enough value from a college education? Is there a way of receiving the same benefit for less? I don't know the answer, but it is something that we need to start looking at.
Another example is home ownership. Most people rely on the lender to determine how much home they can afford. I've heard that a good rule of thumb is that your payments (Principal, Interest, Taxes and Insurance) should be no more than 25% of your gross income. I've heard that lenders will offer you up to 40% of your gross income. Personally, I'd feel better if it was closer to 0%. Again, as home values rise and people feel they require a certain type of home in a certain area, they turn to debt to solve their problems. However, the cost of a home is much more than the Principal, Interest, Taxes and Insurance. There is maintenance, upkeep, repairs, window coverings, etc. The cost of owning a home is much higher than most people realize.
With both student loans and mortgage, when we turn to debt (because we cannot afford it) we are actually paying much more than the original price. The actual cost of a college degree or home ownership becomes astronomical as we turn to debt to solve our inability to pay the price.
My favorite things in life don't cost any money. It's really clear that the most precious resource we all have is time.
Steve Jobs
Cost is what is exchanged for something else. This is not always apparent. For instance there is the idea of opportunity cost, which is that the cost of an action is the sum of alternative actions.
Cost also includes the long term affects. For instance, if you buy a car, the price may be $20,000. However the cost of owning a car includes gas, maintenance, insurance, etc. This is usually called the total cost of ownership.
Most people look at the price tag, and ignore the cost completely. Common decision discussions include things like "Can I afford the payments?" or "Do I have enough money to get X?" Those are the wrong questions to ask yourself. We should be asking ourselves if acquiring something fits in with our long term goals.
One example of cost versus price thinking is college. It is so ingrained in our society that when people leave high school they should go to a four year university. However, there is the opportunity cost (lost wages and experience while going to college) and total cost of ownership of a college degree (including interest payments). Ten years ago it was probably worth it to go to college directly out of high school. However, college tuition inflation skyrocketing since 2001, the value of a four (in my case four and a half) year degree has to be evaluated.
Of course our society, when dealing with inflation, turns to debt. College tuition no longer affordable? Finance it. Student loans don't require payments until you graduation (reminds me of the furniture store ads for no interest and no payments for the next N years). But do you receive enough value from a college education? Is there a way of receiving the same benefit for less? I don't know the answer, but it is something that we need to start looking at.
Another example is home ownership. Most people rely on the lender to determine how much home they can afford. I've heard that a good rule of thumb is that your payments (Principal, Interest, Taxes and Insurance) should be no more than 25% of your gross income. I've heard that lenders will offer you up to 40% of your gross income. Personally, I'd feel better if it was closer to 0%. Again, as home values rise and people feel they require a certain type of home in a certain area, they turn to debt to solve their problems. However, the cost of a home is much more than the Principal, Interest, Taxes and Insurance. There is maintenance, upkeep, repairs, window coverings, etc. The cost of owning a home is much higher than most people realize.
With both student loans and mortgage, when we turn to debt (because we cannot afford it) we are actually paying much more than the original price. The actual cost of a college degree or home ownership becomes astronomical as we turn to debt to solve our inability to pay the price.
My favorite things in life don't cost any money. It's really clear that the most precious resource we all have is time.
Steve Jobs
noun
1.
the price paid to acquire, produce, accomplish, or maintainanything: the high cost of a good meal.
3.
a sacrifice, loss, or penalty: to work at the cost of one's health.
4.
costs, Law .
a.
money allowed to a successful party in a lawsuit incompensation for legal expenses incurred, chargeableto the unsuccessful party.
b.
money due to a court or one of its officers for servicesin a cause.
verb (used with object)
5.
to require the payment of (money or something else ofvalue) in an exchange: That camera cost $200.
6.
to result in or entail the loss of: Carelessness costs lives.
7.
to cause to lose or suffer: The accident cost her a broken leg.
8.
to entail (effort or inconvenience): Courtesy costs little.
9.
to cause to pay or sacrifice: That request will cost us two weeks'extra work.
verb (used without object)
Verb phrase
11.
to estimate or determine costs, as of manufacturingsomething.
12.
Idiom
cost out, to calculate the cost of (a project, product, etc.)in advance: to cost out a major construction project.
13.
at all costs, regardless of the effort involved; by anymeans necessary: The stolen painting must be recovered at allcosts. Also, at any cost.
Origin:
1200–50; (v.) Middle English costen < Anglo-French, Old Frenchco ( u ) ster < Latin constāre to stand together, be settled, cost;compare constant; (noun) Middle English < Anglo-French, OldFrench, noun derivative of the v.
1200–50; (v.) Middle English costen < Anglo-French, Old Frenchco ( u ) ster < Latin constāre to stand together, be settled, cost;compare constant; (noun) Middle English < Anglo-French, OldFrench, noun derivative of the v.
Monday, March 5, 2012
Wednesday, February 29, 2012
WW: Price
Welcome to Word Wednesday. The word of the week is Price.
Some people prize price over value so much that when presented with a "deal" they will buy something they would not normally buy. Advertisers count on this. Author Robert Kiyosaki calls this turning your cash into trash.
As an example, say you can get a cell phone plan that gives you 700 minutes a month for $40 per month. The next tier gives you 1,500 minutes a month for $50. Some people would say that the first plan is almost 6 cents a minute and the second is a little over 3 cents a minute. The price per minute does not tell you the value. If you only use 500 minutes a month, you are really are paying 6 cents a minute for the first and 8 cents a minute for the second. I've heard people say that for $10 a month more they don't have to worry about going over. That's their value judgement, just don't use price as the reason for the purchase.
Bulk buying is another way many are tricked into spending more money. This is somewhat related to the 1,500 minutes. The more you have of something, the more you tend to use. We used to buy little cinnamon containers. They were more expensive per ounce than the big bulk containers so we switched. Then we noticed that we were using more cinnamon, because we had more. We didn't have to worry about running out. Kind of like no one wanting to drink the last of the milk in the fridge. When you get low, you tend to ration more (ie use less). When you buy in bulk, you get low less often and tend to use more. Also, if it is perishable you run the risk of throwing out (wasting) more. Add on top of that that sellers know that the mentality is that bulk costs less per unit, they will actually sell bulk at more per unit. Few people actually validate that bulk costs less per unit and will end up paying a lot more.
What is a cynic? A man who knows the price of everything and the value of nothing.
Oscar Wilde
noun
1.
the sum or amount of money or its equivalent forwhich anything is bought, sold, or offered for sale.
2.
a sum offered for the capture of a person alive or dead: Theauthorities put a price on his head.
3.
the sum of money, or other consideration, for which aperson's support, consent, etc., may be obtained, especiallyin cases involving sacrifice of integrity: They claimed that everypolitician has a price.
4.
that which must be given, done, or undergone in order toobtain a thing: He gained the victory, but at a heavy price.
verb (used with object)
Idioms
8.
to fix the price of.
10.
at any price, at any cost, no matter how great: Their orderswere to capture the town at any price.
11.
beyond 
/ without price, of incalculable value; priceless:The crown jewels are beyond price.
/ without price, of incalculable value; priceless:The crown jewels are beyond price.
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