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An Understanding of How to Spend Your MoneyThe value of money is relative and changes over time. Get a better understanding of your money, its value, and how to spend it.
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When you understand the value of money within your circumstances, you can be smarter about how you spend it.
“ The more prosperous a person becomes, the less meaningful the benefit from a cost-conscious economic decision.”
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The wise use of money is the only advantage to having it. ~ Ben Franklin
In an earlier time, under the influence of the traditional Christian ethic, virtue assumed a divine quality. Among these principles was thrift, honored for its own sake. I recall a popular tale about the wife of a man of extremely modest means whose food shopping consisted of selecting the lowest priced items from numerous markets. Naturally she walked from store to store or perhaps "trudged," to add a touch of pathos. In any event, the story served its purpose. It illustrated a frugality next to godliness, with no limit to the exaltation experienced in such behavior.
Things are no longer as they were. A recent report reveals over half a group surveyed refused to pick up a penny on the ground. Speaking for myself, I’ll never pass one by. Perhaps it relates to my recollections as a teen-aged bowling alley pin setter earning a dime a line. A penny represents resetting of ten wooden pins and returning two 16-pound balls. To this day one cent signifies a reward for services rendered. Are my experiences unique? It’s hard to say whether this attitude is generational or personal.
There’s a term taught in first year economics known as marginal utility of money. The principle is easily illustrated. Consider the case of Bea Reft, annual salary $30,000 who receives a $5,000 increase. Her life is measurably improved. She can now eat out a little more often, join the neighborhood health club and buy that pair of unaffordable black Amalfi pumps. Contrast this with Greta Gotrocks, earning $180,000 per year who likewise receives a $5,000 pay increase. Compared with her standard of living before, that relatively small additional amount is meaningless. The likelihood is Greta will never notice the difference.
The more prosperous a person becomes, the less meaningful the benefit from a cost-conscious economic decision. If the 9-month old car radio of Elizabeth F. Rugle, a housekeeper earning $500 per week, malfunctions, she should invoke her warranty despite the fact she must do without for the four weeks it will take for the radio to be reinstalled. However, if the same misfortune befalls Edward P. Rosperous, a $210,000 per year title company executive, he may ignore the warranty, buy a new car radio for $200 and install it at once. The pleasure of listening to the radio for those four weeks provides a greater marginal benefit to him than the price he pays.
Finally, consider another principle, that of diminishing returns. As an illustration, a pair of stereo speakers faithfully reproducing sound over the frequency range 30 to 16,000 hertz (cycles per second) costs $250. By employing the ultimate in design and manufacturing techniques, this expands to the range of the human ear, 20 to 20,000 hertz, but the sales price increases to $2,500. As the difference in listening quality is slight at best, the extra price paid for the more expensive pair is clearly an example of diminishing returns—paying a great deal more for a very slight improvement.
In short, your conduct as a consumer relates to what you find important in life. With limited resources, but aspirations for the future, base your choices on thrift and discipline. As the years pass and net worth increases, modify your conduct accordingly, but keep in mind that these must be deliberate choices. Don’t let advertising pressures or market manipulators preempt these decisions.
For more on Al Jacobs visit his website www.roadwaytoprosperity.com. You can also purchase his book, "The Road to Prosperity." on Amazon.
In an earlier time, under the influence of the traditional Christian ethic, virtue assumed a divine quality. Among these principles was thrift, honored for its own sake. I recall a popular tale about the wife of a man of extremely modest means whose food shopping consisted of selecting the lowest priced items from numerous markets. Naturally she walked from store to store or perhaps "trudged," to add a touch of pathos. In any event, the story served its purpose. It illustrated a frugality next to godliness, with no limit to the exaltation experienced in such behavior.
Things are no longer as they were. A recent report reveals over half a group surveyed refused to pick up a penny on the ground. Speaking for myself, I’ll never pass one by. Perhaps it relates to my recollections as a teen-aged bowling alley pin setter earning a dime a line. A penny represents resetting of ten wooden pins and returning two 16-pound balls. To this day one cent signifies a reward for services rendered. Are my experiences unique? It’s hard to say whether this attitude is generational or personal.
There’s a term taught in first year economics known as marginal utility of money. The principle is easily illustrated. Consider the case of Bea Reft, annual salary $30,000 who receives a $5,000 increase. Her life is measurably improved. She can now eat out a little more often, join the neighborhood health club and buy that pair of unaffordable black Amalfi pumps. Contrast this with Greta Gotrocks, earning $180,000 per year who likewise receives a $5,000 pay increase. Compared with her standard of living before, that relatively small additional amount is meaningless. The likelihood is Greta will never notice the difference.
The more prosperous a person becomes, the less meaningful the benefit from a cost-conscious economic decision. If the 9-month old car radio of Elizabeth F. Rugle, a housekeeper earning $500 per week, malfunctions, she should invoke her warranty despite the fact she must do without for the four weeks it will take for the radio to be reinstalled. However, if the same misfortune befalls Edward P. Rosperous, a $210,000 per year title company executive, he may ignore the warranty, buy a new car radio for $200 and install it at once. The pleasure of listening to the radio for those four weeks provides a greater marginal benefit to him than the price he pays.
Finally, consider another principle, that of diminishing returns. As an illustration, a pair of stereo speakers faithfully reproducing sound over the frequency range 30 to 16,000 hertz (cycles per second) costs $250. By employing the ultimate in design and manufacturing techniques, this expands to the range of the human ear, 20 to 20,000 hertz, but the sales price increases to $2,500. As the difference in listening quality is slight at best, the extra price paid for the more expensive pair is clearly an example of diminishing returns—paying a great deal more for a very slight improvement.
In short, your conduct as a consumer relates to what you find important in life. With limited resources, but aspirations for the future, base your choices on thrift and discipline. As the years pass and net worth increases, modify your conduct accordingly, but keep in mind that these must be deliberate choices. Don’t let advertising pressures or market manipulators preempt these decisions.
For more on Al Jacobs visit his website www.roadwaytoprosperity.com. You can also purchase his book, "The Road to Prosperity." on Amazon.
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