How to Tell a Good Deal from a Bad Deal
Price is what you pay. Value is what you get.
Warren Buffett
An ancient parable tells of a man who discovered buried treasure on a property that he didn’t own.
The price for this property was so high, however, that he could afford to buy it only if he sold everything he had.
That’s exactly what he did, and he did that happily.
He knew the value of the property was much higher than its cost.
How many dollars would you buy if they cost only 75 cents each?
You would buy as many as you could.
How many would you buy at $1.01?
Every one of these expensive dollars you bought would reduce your net worth.
There is more to a transaction than its cost in dollars.
You would want to evaluate the following costs:
· energy cost
· time cost
· maintenance cost
· opportunity cost
How much personal energy would this new product require from you?
How much time would be needed to use it?
How much maintenance would it need?
If you say yes to this transaction, what other opportunities are you automatically saying no to?
You should also calculate the value of an item in more than just dollars.
If the price is higher than the value, it is a bad deal.
If the value is higher than what it costs, it is a good deal.
Some of the best things in life cost few or no dollars. However, they may have a higher price tag in time, energy, or freedom.
If you are an employee, you are trading your time and energy for a paycheck. Your goal should be to provide more value to the company than what you cost in your salary and benefits.
If you are a business, your goal should be to provide your customers with more value than what they are paying for.
If you have a family, you should always consider how a transaction will affect them. What is the cost and value to them?
If you are selling a product or service in a competitive market, it is better to increase the value to the customer than to reduce the cost.
This may sound like a lot to think about.
But you should also consider the risk of not thinking about all the ways you can measure cost and value.
Some costs are easy to overlook.
Without a good grasp of the actual costs, it is difficult to make good decisions.
This doesn’t require a complicated Excel spreadsheet.
It does require self-awareness, however.
You have 24 hours today. How are you going to invest them?
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