What is expensive? Why do you consider something to be expensive or may be even too expensive? (I am not talking about Bugatti, a private jet or a duplex on the 5th Avenue here, just about simple stuff) Do you make a comparison with other alike products? Do you take into account opportunity costs? Do you consider hidden costs?
In this short article I would like to talk about the perception of money, or better – understanding for yourself what “expensive” actually means.
Just a couple of days ago I had a conversation with somebody who said that beef steak is extremely expensive to buy. Ok, fair enough, beef is expensive. But how much does it cost in a shop? Around 5 EUR for a portion? That’s a price of a latte and a cookie in a cafe we were sitting with that person. And that was already our second round… 5 euros is also a price of a small toy, a box of ice-cream, a pair of socks, you name it. Why 5 EUR for a pair of socks is OK, but for a delicious dinner you make at home – that’s too much?
When I personally decide on something being expensive, I start with looking at opportunity costs. For every euro (or dollar, or whatever currency unit you have) you have a choice of where to spend it. Simply put, if you “invest” one euro in a steak, you can no longer “invest” the same one euro in a pair of socks. Therefore, the first thing to take into account when you are deciding whether something is expensive or not is –
what would I otherwise be able to buy with the same amount of money? Even I would rephrase it further to – what do I habitually buy with the same amount of money?
Second, obviously, a comparison plays a role. But what are you actually comparing? In the example of a beef steak, you might be comparing a beef steak with a chicken fillet (both of them can serve as a dinner). However, do you also compare a beef steak from a supermarket and a beef steak served at a restaurant? You would say those two are not equal? That depends on what is it that you are actually after. You can replicate the ambiance, the representation and even the taste of a restaurant steak at home with some practice.
You might be interested in How to make a perfect steak? (link to my article in Russian)
The starting point like with a lot of things is to answer a question: what do you actually want? And then the second question is: how can I get that? Answering those two questions might provide different possible comparison options for you.
Another consideration to take into account is hidden costs. Here the steak example is a bit off and it’s easier to go mechanical. For example, you are considering buying a coffee machine. Will it be a capsule one or a classic espresso-maker? Are there generic capsules or you are stuck with the brand? (I am skipping the issue of whether you want to be stuck with the brand or not, just – are you?) How should it be maintained? Are you forced to use only special branded cleaning products? Do all cups fit under it or you need special cups? What else “special”, “for this machine only” things will you need? What is the average life span for those machines? How much does the repair cost? In other words, third thing to consider is how much hidden costs are still there beyond the price tag?
To draw the line, the price tag is only one of the indicators that might give you an idea of whether something is expensive or not, but there is much more beyond the price tag that you need to consider before you label something “expensive” and choose against it.
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