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Dont think of price, think of cost per use

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Re: Dont think of price, think of cost per use

#21

Post by leetcrew »

paxys wrote: post #9

The overall idea is better expressed as – value stuff based on how important it is to you vs just the dollar amount associated with it, which is pretty generic and obvious advice. Trying to simplify it down to "cost per use" or some other similar metric is pointless. Is the $3000 flight ticket that you use once worth more or less than a $1000 phone you use thousands of times or a $5 coffee you drink in one gulp? No o…

of course it's not possible to come up with an ironclad set of rules on how best to spend money, especially not in the space of a single blog post. but that doesn't mean it isn't worth trying. if nothing else, it helps to become more intentional about how you spend your money, which most people would probably benefit from.

I personally don't find the concept described in this blog post very useful. I prefer to think in terms of annualized/amortized costs, especially within the perspective of money-stress-time tradeoffs. I could see others finding it helpful though.

Re: Dont think of price, think of cost per use

#22

Post by jeffwilcox »

nayuki wrote: post #10

Along these lines, I find that not many people correctly calculate the cost-per-use of their car. They only think of the cost of gasoline burned, and maybe tolls and parking. They don't think about the cost of insurance divided by the number of trips, or the capital cost of the car amortized over the years of ownership. If people thought hard about the cost-per-use of driving, then other transportation options start…

Some of us have calculated it... and it is frightening! I have an Excel sheet of all the cars I've ever purchased or leased, and the cost per mile of them, and it is staggering. Thankful to have enjoyed some fun cars, I cannot imagine just how much of this economy is powered solely by this car dependency we have in the US.

I've also estimated my cost to commute to my tech job in the suburbs (thankfully full-time remote now), and it was staggering how much that was including insurance, maintenance, tolls, electricity, etc., compared to free options/transit/corporate bus/remote work/my daily mortgage cost.

Re: Dont think of price, think of cost per use

#23

Post by bachmeier »

> this means you spent about $0.02 per use, 2 cents every single time you use your phone. That seems like a way better deal than the $14.05 McDonalds meal that you just bought last week

What? Why would you compare a "use" of your cellphone to a really big McDonalds meal? I mean, I should stop eating because there's no way I can eat a meal for less than the cost of using a cellphone one time?

Re: Dont think of price, think of cost per use

#24

Post by BeetleB »

This is completely backwards.

Always think in absolute dollars and not in rates. $1000 is $1000 whether the cost per use is pennies or tens of dollars. Thinking in terms of rates is how people would fall for predatory installment purchases in the old days (you can have a new computer for just $2.5 a day!)

The other obvious problem is looking at cost absent of a market. It's not just how much it is worth it to you, but what the competition is offering it for. I personally pay less than $400 a phone and keep it for over three years. Paying $1000 for a phone just two years is not an improvement.

Edit: I spoke very dogmatically above. Using rates can be OK in certain situations where the analysis becomes equivalent to using absolutes, but it's not at all rare for rate analysis and absolute analysis to differ, and people make the mistake of using rates there. You will never, ever, go wrong by looking at absolute amounts, though - and it's usually the easier way to analyze.

In my engineering undergrad, Engineering Economics was a required course. I remember a fellow student said "I often return other engineering textbooks to get some cash, but this book is more useful than most of my engineering ones." Decades later, I can say he was definitely right. All too often I see engineers making poor financial decisions based on heuristics when they're quite capable in doing the (simple) math. But a lifetime of being exposed to flawed ways of thinking of money provides a convenient shortcut.

Re: Dont think of price, think of cost per use

#25

Post by formerkrogemp »

tracerbulletx wrote: post #7

Trying to quantify the psychological value of our experiences to do some kind of double entry booking that justifies our expenses seems like kind of a fools errand to me but that's pretty much what you'd have to do if you wanted to optimize your personal expenses. Time of use doesn't necessarily translate to value or make sense to amortize by. If I do something that makes me just slightly happier or even worse off ma…

> what you'd have to do if you wanted to optimize your personal expenses.

Yeah, it's called budgeting and being poor. Some of us try to maximize this satisfaction and lifelong memories while avoiding incurring significant personal debt on a low salary. Tradeoffs and opportunity costs abound. Of course not everyone should or would be better off being cognizant of these costs and quantities, but some of us have to be by necessity.

Re: Dont think of price, think of cost per use

#26

Post by XorNot »

Brajeshwar wrote: post #17

I got the gist of the article with a quick speed-read. I have kinda used this unknowingly for a very long time. I have also helped a lot of people make buying decisions, especially when they find the upfront cost high. My view is -- start from the cost of your use and buy it even if it is on the costlier side upfront. This is also akin to buying smaller number but of high quality item so they last longer and thus the…

Same for me: cost per use is helpful to get you thinking about total cost of ownership and product lifetimes.

It's a really good way to evaluate how much you should pay for the second purchase of a tool - also whether the price is worth the warranty.

My Bosch laser Level for example cost $150 more then the alternative, but came with a 6 year as opposed to 1 year warranty. At a total price of $600, I was buying it at $100 a year guaranteed availability. Whereas the cheaper option actually cost me $450 for only 1 guaranteed year of service.

Re: Dont think of price, think of cost per use

#27

Post by Spivak »

BeetleB wrote: post #24

This is completely backwards. Always think in absolute dollars and not in rates. $1000 is $1000 whether the cost per use is pennies or tens of dollars. Thinking in terms of rates is how people would fall for predatory installment purchases in the old days (you can have a new computer for just $2.5 a day!) The other obvious problem is looking at cost absent of a market. It's not just how much it is worth it to you, bu…

You’re not really disagreeing with the author.

* $/use isn’t really a rate in the way you’re describing with predatory financing. It’s not a cost hiding measure but one of many ways of estimating utility. Optimizing for price alone and not $/utility will bite you for lots of goods.

* A $400 phone used 100 times is $4/use and a $1000 phone used 100 times is $10/use so markets still have plenty of an effect.

Re: Dont think of price, think of cost per use

#29

Post by bombcar »

BeetleB wrote: post #24

This is completely backwards. Always think in absolute dollars and not in rates. $1000 is $1000 whether the cost per use is pennies or tens of dollars. Thinking in terms of rates is how people would fall for predatory installment purchases in the old days (you can have a new computer for just $2.5 a day!) The other obvious problem is looking at cost absent of a market. It's not just how much it is worth it to you, bu…

For non-necessary payments I think of it in cheeseburgers. Would I rather have this five hundred dollar phone or eat a cheeseburger a hundred times?
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