Just over fifty years ago in July 1965, the Rolling Stones had their first number one hit, “(I Can’t Get No) Satisfaction.” You want to GET SATISFACTION with your spending. This is what we call utility value, and it’s a VERY subjective thing. The question is, what is the best way to determine the utility value of your expenses?
How Do You Determine the Actual Value of Your Expenses?
The value one places on goods or services are often different from the value another person places on the same goods or services. This is known as the “theory of subjective value.” If you are in a relationship, you had better recognize! Recognize how much people have different desires and differing preferences. We may be talking about your partner here! Instead, focus on utility value–how much enjoyment, satisfaction, benefit, or worth you or your partner get from a particular item or service.
Make a shortlist of what seems to be important to your partner. There may be some overlap or commonality. For example, my wife Dee and I enjoy a relaxing long weekend, but we also have individual pleasures. Dee places great importance on regular mani-pedis. This is where economists completely miss the mark, labeling this a variable expense. You want to know why? Because it’s important to HER! For me, it’s golf on a beautiful course. What we are saying is to learn the things you are spending money on that bring you great satisfaction.
The Difference Between Value and Price
Do you or someone you know love to find a bargain or sale? This is because of the distinction between value and price. For example, if you see a blue shirt on sale from a brand you trust, you think it’s a great deal, so you buy the shirt because the value is greater than the price. But if one blue shirt is good, are two of them better?
Economists refer to this as “marginal utility value”. Attributed to Carl Menger, this asserts that the utility value goes down the more you consume the same item. Have you ever craved an ice cream cone, then had pure bliss as you enjoyed that Ben & Jerry’s or 31 Flavors treat? Sure, but if you had a second one, maybe not so much!
There is no need to stress over some of your expenses. Their value is not based solely on price. An expense is a good expense if it enhances your overall life quality. The value of your expense isn’t determined based on the price, but on the value you deem correct. Notice how much utility value you get from all your purchases in the next few days, ranking them from 10 to 1, and let us know what you see.
All sample photos courtesy of wikihow.com