Earlier last year, I wrote an article for Moneyville about considering the “cost per use” method whenever you are looking at buying something.
Personally, when I’m out shopping and thinking about buying something, I first find that I’m asking myself whether the item is a want or a need. Then, I quickly look at the item’s “cost per use” to see if it’s really going to put value in my life. It’s obviously not the only thing I do to determine whether I should buy something, but it definitely helps to keep me thinking about long-term value.
This is something that I think a lot of PF bloggers do, but maybe it’s not something that many other people think about when they go shopping. I got a lot of “interesting idea” or “I never really thought of it like that” comments. Then, there are some bloggers who were vocal about the original Moneyville article and called it “junk advice.” Fair enough, we’re all entitled to our own opinion. :)
This blogger said:
Krystal blew $275 on a purse but justifies it as costing only $0.25 a day – using the same logic that makes Rent-to-Own furniture seem cheap. I’m not saying people can’t splurge. But she’s wallowing in debt. She is a serial splurger. And she doesn’t even calculate the implicit interest cost in the article.
Note: I left out the part in the paragraph about how this blogger felt about my “mid-life-crisis-esque romp in Euro-Utopia” – which he apologized for 3 months later at CPFC12. :)
With the cost per use concept, you take the purchase price of an item, and divide it by how many times you will use it. For example, with the purchase he’s referring to, I bought a Roots purse for $275. This was not a justification for an impulse purchase – I spent three months debating whether I should spend such a large amount of money on something like a handbag (to date, it’s still the most I’ve ever spent on a “fashion” item).
Calculating the cost per use of this purse, I realized that if I used it every day for just two years, I would only be paying 37-cents per use. Four years later, I’m still using the same purse every day (pictured) – bringing my cost per use down to less than 19-cents.
To me, the cost per use justified the price. So instead of buying a cheap $30 purse, I decided to save up for the more expensive one that I liked a lot more than the cheap one (which definitely wouldn’t have lasted 4 years of everyday use).
Of course, there are flaws to the cost per use method:
- It won’t help you with every purchase. For example, take a look at your home. Many families have an extra guest room. But if it costs you an additional $30,000 on the purchase price, and it’s only used six or seven times each year, is it really worth it? Well, of course that’s debatable. Having an extra room in your home usually means you will command a higher price when it comes time to sell (and it also might be easier to sell). But in exchange, you will have higher payments each month, and you will also pay more interest over the life of the mortgage.
- Most people tend to overestimate the amount of times they will actually use the item in order to justify the purchase. Don’t pretend like you’re going to wear those $600 shoes every week when you know you’ll only end up wearing them a few times each year – at most. :)
Putting the cost per use logic aside, you still need to be able to afford each purchase before you buy it. If you don’t have the cash saved up for it, you can’t afford it. And if you can’t afford it, that means no matter how good a deal might be, or how many times you think you will end up using it, the cost per use is irrelevant.