Value, not cost (Part 1)

Ramit Sethi · October 7th, 2005

In my post about cheap vs. frugal people a few days ago, I mentioned value vs. cost. I want to dig into this a little bit more.

Remember when I went to the grocery store and was outraged at how much it cost to buy the basics for new apartment? That sucked.

Anyway, my reaction was based on the cost ($186.00!!!) instead of the value. The value of buying food at the grocery store becomes obvious when you compare it to eating out.

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The easiest way to see this is to do a quick break-even analysis.

(Remember, I live in Palo Alto and the food around here is for old white rich people.)

(Try playing with the values of the spreadsheet–they’re editable. If you’re reading this in RSS, the spreadsheet won’t show up, so click through to see this actual page.)

A break-even analysis works for more than food. Try thinking of examples of your own where you want to see when the money you’ve spent (invested?) will pay off. Some ideas:

  • Lifetime vs. monthly subscription for something like Tivo
  • Premium gas vs. regular (calculate the mileage you get)
  • How many products someone needs to buy vs. your marketing spend (shocking how few marketers actually do this)

The big takeaway for me is that, hey, $186.00 isn’t really that much for a first grocery run. That much food gave me MUCH more than 12 meals. So it was clearly worth it.

Next time you’re thinking about buying something, evaluate the value, not the cost!

Also, don’t live in Palo Alto if you like dirty cheap food.

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  1. Ginsberg

    Premium Vs. Regular gas… I’m an automotive engineer, and people should understand that premium gas should be used when your car *requires* it, and putting it in any other car will make *absolutely no difference* for the vehicle. The octane number is a measure of how easily the gasoline combusts. Performance vehicles (i.e. Mercedes-Benz, Jaguar) have engines with higher “compression ratios”. If you use low-octane (regular) fuel with a high compression ratio engine, the fuel can combust before the spark (due to higher pressure coming from higher compression), causing a phenomenon known as “knock” which will severely damage the engine. Thus these engines do require high octane (premium) fuel, and will tell you so near the gas cap. Now, using premium fuel in a low/average-compression ratio engine (i.e. my Ford Focus) does nothing. There is no risk of knock causing damage in these engines with any type of fuel. If you read anywhere that there are other benefits to using premium, I sincerely believe you are being tricked into buying a product you do not need.

  2. The spreadsheet works even in the RSS file. Amazing!