This Simple Calculation Will Tell You If You're Getting Your Money's Worth

By Sarah Winfrey on 29 September 2016 0 comments

Do you ever wonder if you're really getting your money's worth out of the purchases you make? I know I do. There are times when I buy something and then wonder, "Will I really use this enough?"

Luckily, personal finance blogger Mixed Up Money and her brilliant Twitter followers have come up with a way to calculate this.

Use Value

For everyday purchases, like clothing, they suggest giving items a "use value" of $1. If you spend $200 on boots, then, you would have to wear them 200 times to make your use value that low.

While this is a bit arbitrary and most people don't actually count the number of times that they wear or use every single items in their homes, it can be a helpful way to think about new purchases. If you don't plan on using something at least to the point where the use value is $1, then maybe you don't need to buy it.

Use Value for Large Purchases

Use value is more straightforward for everyday purchases, but it can still be applied to larger ones. If, for instance, you own a home, you can calculate a daily use value. Let's say you make a mortgage payment of $1,500 every month. Divide that by the number of days in the month — say 30 — and you have a daily use value of $50.

Again, this is somewhat arbitrary, but it will help you determine whether a purchase is something you want (i.e., do you want to spend $50 a day on the particular home that you have or are considering?). It can also help you determine whether you can afford it. Do you actually have $50 per day to spend on a house, or do you need to get your spending under control before you make the purchase?

Other Ways of Calculating Use Value

For certain purchases, you will want to calculate your use value differently. If you know that the one-time cost of doing something equals a certain amount, then you can decide how often you want to do it, multiply that number by the one-time cost, and see if it makes more sense to buy.

I did this over the summer with a paddle board. I love paddleboarding, and I knew that it was something I'd want to do over the years to come. I also know how much it costs to rent a board per hour. When I realized that over the next few years I would spend quite a bit more renting boards than I would spend if I just bought one, I went ahead and made the purchase. In this case, what mattered more was that the cost per use was less to buy than it was to rent.

Use Value and Other Kinds of Value

In general, I think that use value is a great way to think about most of the things we want to buy. It gives us a perspective that we might not otherwise have on the things we purchase, and helps us think through purchases in a different light.

It's important to remember, though, that some things will have value to us outside of their use value. Let's go back to the paddle board I bought this summer. Buying it did make sense from a use value perspective, but I might have bought it even if it didn't.

Here's the thing: Owning a paddle board has allowed me to develop and deepen friendships that I might not otherwise have been able to. I have met some people boarding that I wouldn't have met if I didn't have my own board. And, when you're out on the water, it's easy to sit on the boards and talk for hours. So I have gotten to know people in different ways (and probably better!) than I might have gotten to know them without the board.

This kind of value isn't really something you can calculate. My friendships can't be assigned a numerical value. And yet, they are extremely valuable to me. Even if something unexpected happens and my paddle board is destroyed tomorrow (meaning that I won't use it enough to make the purchase make sense financially), I will feel like I got my money's worth out of it.

Some things have worth beyond use value, and it's important to think about this, too, when you're thinking about a purchase.

Use Value and Budgeting

If you keep a detailed budget, use value can help you plan for the future. Clothing is one area where keeping a use value in mind can help you set a thoughtful, realistic budgeting number.

For instance, fall is finally here. For many of us, that means that we will need some new clothes. It's time to take stock of the closet, discard what won't work from last year, and buy some items to fill those spots.

Thinking about use value can help this project. When you look at your closet, consider what you paid for items you're thinking of discarding, and approximately how often you wore them. Items that have hit their use value are likely to be in worse shape, and may be things to consider throwing out. On the other hand, you may realize that certain brands and styles get worn more often, and therefore are items where you're more likely to hit that use value of $1.

Using what you learn as you go through your closet, you can set a more realistic number when it comes to the cost of updating your wardrobe for fall, and it can help you make wiser choices about what to buy when you're out shopping.

Use value is a helpful concept for deciding whether to make a purchase or whether a particular purchase was actually worthwhile. It's not a perfect concept, but it can help you make wiser, more informed choices about what to buy and when.

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katherine

I agree with all of this, and have calculated value for years, except with my house. At first, I did this then freaked about how much it was costing me (my family) to live per day. but then I thought about it a bit more. 1. It is so much more than cost per day (and be sure to include utilities). It determines where my kid goes to school. It determines most likely what I'll pay for gas, and how much gas I will use (to get around to where I need/want to go). It determines what my insurance rate will be. It determines, most likely, who my kids will be friends with, and opportunities afforded to them.