Monthly Archives: March 2015

Price vs. Value

Understanding the difference between price vs. value will probably save you a lot of headaches, improve your finances, and even your life.

To simplify, price is the dollar cost, while value represents the benefits or worth received.

Price is very easily measured, and is an okay measure to use when purchasing goods and services of relatively low significance. Goods are easier to compare because there are usually less variables to consider. As the purchase becomes more significant then so should the role of value.

Value is much harder to compare because some of the benefits are intangible. An example of a product purchase is a personal vehicle. You may have found two similarly priced vehicles that have many similar features, but the less apparent differences are the resale values, operating costs, and repair costs.

An example of determining the value of services can be made with an investment advisor. A good investment advisor will help you to not only achieve investment returns that are in line with comparative benchmarks, but also minimize the tax impact, allocate resources properly, and make sure that you do not make rash decisions, such as selling when the market bottoms out.

Take a step back and think of decisions that you make only on price. Now, factor in value and compare your experience and results. I am sure that you will be surprised.

Budgets are Boring

Ever wonder where all of the money went and you just don’t know what you spent it on? You’re not alone, but it’s still not a good thing. Here are a few simple ways to help you to keep track of your money on an individual level. We’ll address businesses in another article.

Quicken: You need to develop a budget and keep track of your money. A good software program Is Quicken, where you can create a budget and compare it to your actual income and expenses.

Envelope Method: Another old-fashioned, but yet effective budgeting method is to use the envelope system for your expenses. You would use an envelope for each of your expenses, such as gas, groceries, and dining, and then contribute a set amount of cash to each envelope each time you get paid. Once the envelope is empty then you wouldn’t be able to spend more for that category. This takes some practice though, because you need to make sure that you contribute enough and don’t “steal” from other envelopes.

Automatic: This method calls for automatic withdrawals and payments from your checking account and/or paycheck. For example, you can have a portion of your paycheck directly sent to a savings account or have investments withdrawn each month from your checking account. Expenses and even donations to your Church can also be made automatically.

Each method has its pros and cons, which is why you need to choose the one that fits you. I believe that one reason why people do not like to budget is because they view budgeting as a way of restricting themselves, similar to a diet.  The opposite is actually true because a budget will ensure that you are spending your money on the things that matter the most to you.