A Guide on Spending Money
29 Oct 2008 Quan Quach 10 comments 149 views
Photo from jimwhimpey
Finally, a non-MATLAB related post! First of all, I want to emphasize that this post is not about how to save money or how to better handle your finances. This post simply offers a different perspective on spending money.
A lot of people have difficulty justifying the purchase of a high ticket item. I think we can all agree that putting down $2,000 for a plasma or $1,500 for a new laptop can be a monumental purchase. But if you adopt a different way of thinking when it comes to purchasing such items, it can make you feel much better about your purchase. When I want to make a big ticket purchase, there are a couple if things that I consider before taking the plunge. Instead of focusing on the total overall cost, one should focus on the incremental cost.
- Take the total cost of the item you wish to purchase.
- Determine the life expectancy of item.
- Determine how many days you will use item during its life expectancy.
- Take the ratio of total cost/number of days.
- A ratio of 2 dollars/per day or less is in my book “affordable” (this value should change depending on what type of goods you purchase, your budget, etc)
- Yes, I realize this is a rather simplistic model, but it offers a framework to build upon!
Let’s do a couple of examples.
New Computer: PC or Mac
Photo from gepat
What: Let’s use the MacBook as our example here. The MacBook is a sleek, well designed, and compact laptop that is a tad expensive for my taste. Let’s see how it does using our theory.
Cost: $1500.
Average estimated lifetime: 3 years.
Average use: 5 days out of the week, for 52 weeks, for 3 years. 52*5*3 = 780 days.
The Ratio: $1500/780 days is approximately $2/day.
Conclusion: Two bucks a day isn’t bad. If you want that MacBook, you could not get that latte from Starbucks each morning.
Cell Phone
Photo from misbehave
What: The I-Phone (like all other Mac products) is all the rage these days.
Cost: $400 (more or less depending on what plan is acquired).
Average estimated lifetime: 2 years.
Average use: I estimate that 95% of the time, you will be using your I-Phone. 365 days * 2 years * 0.95 = 694 days.
The Ratio: 400/694 is about 57 cents a day.
Conclusion: This one seems like a no-brainer. Buy!
For the Female Engineers
Photo from pinkmoose
What: New Purse from Chanel/LV/Ballenciaga/Coach/Gucci/etc
Cost: $1000 (conservative estimate here. purses can be quite spendy and the upper limits boggles the mind)
Average estimated lifetime: 1 year before the purse goes out of style. Fashion waits for no one.
Average use: I think it’s safe to say that the average girl wouldn’t use the same purse more than 3 times a week. I believe that the average use will be higher during the beginning of the purse’s life and much more sparse at the end of its life. 1.5 Years * 365 Days * 3/7 = 235 days. I would have to say that this is probably the upper bound on average use.
The Ratio: 1000/235 is 4.26.
Conclusion: This one seems a little high. But women can be irrational at times. If you don’t own a high end purse, I would say it’s a good buy. Otherwise, save your money for something else!
Addendum: Average use will depend on how many purses are currently own and should be factored in.
Photo from geishaboy500
What: Shoes
Cost: $50-$500 (or more). Let’s assume $100 for shoes. There’s only one girl I know who will buy $500+ shoes, and she is a little bit crazy (and rich).
Average estimated lifetime: Shoes have varying lifetimes. Some shoes go out of style in a matter of months, other shoes might last up to a year. Since it’s better to err on the side of caution, we’ll use 1 year as the estimate here.
Average use: The average girl (in my opinion) probably doesn’t wear the same shoes more than twice a week. A very conservative estimate.
The Ratio: 100/104 is approximately 1.
Conclusion: Very good ratio here. But we also have to take into account the pairs of shoes already owned. In addition, the ratio is based on very conservative estimates.
Photo from hanus
What: Jeans. It seems that every girl has over 15 pairs of jeans. Do you really need another pair? I think the answer is yes.
Cost: $200 seems to be a fair amount.
Average estimated lifetime: 1 year before the jeans goes out of style. Some last longer, some shorter. It all depends!
Average use: I think jeans for the most part are worn at most once a week. Let’s use that as our average
The Ratio: 200/52 is 3.85
Conclusion: 3.85 sounds a bit high to me. But I know a couple girls who keep on getting new jeans even though they have enough to last 10 lifetimes.
Application to YOUR Life
To what items would you apply this method of thinking?? We look forward to people supplying their own examples or counterexamples.
10 Responses to “A Guide on Spending Money”
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Um, isn’t the data plan for an iPhone something like $80/month? So your $400 buys you a lump of metal. The $80/month goes over your $2/day right there.
That’s why I bought an ipod touch instead.
I think a lot of your data like “one year to go out of style” is way off, too. Not on the shoes, because they’ll wear out anyway.
Ok,
I’m pretty sure what he was referring to is the different perspective on spending money. Not the actual details. On that note, I’d like to ask where you got the picture of the piggy bank, because it’s absolutely adorable
Hi Quan,
I think that’s an engineer way of thinking!
I usually do the same buying videogames. The cost is usually around 50€ so, if the game lasts over 15/20 hours the “hour price” is reduced to 2.50€ (affordable). If the game is too short that price could be too high!
Hey Quan,
I like the analytical nature of the post, and that it uses an alternative approach. One thing: if I keep making $2/day purchases, they tend to add up! I think you also need to consider the total spend versus your rate of income. I would hate to increment myself into a low-rent box under the interstate situation. 8^)
Rob
Hey Quan,
I know you were writing a silly article, but you weren’t very nice to the female engineers.
You didn’t say anything bad about people buying cell phones or PC’s but the women were all girls, unless they were irrational.
I’ve been enjoying your blog, but I think you made it sound too much like the women you know are typical and everybody is like them, instead of saying the women you know are unique and here’s how the purchases they like would work out for them.
Hi Betty,
I’m sorry you were offended by my post. Women can probably relate better to stuff like shoes/clothes/purses than men. Men probably relate better to electronic gizmos. I was just trying to show that my train of thought can be extrapolated to outside of computers and widgets. I’ll keep what you said in mind. Thanks for the input!
Quan
Wow why purses when you can get a 360 and still have money left for games??? XP
Honestly, I’m a woman myself but there is NO WAY I’d ever spend $1000 on a purse (or $500 on a shoe, for that matter)…
Hi Quan,
Very interesting idea. However, as Rob S. said, all those $2/day items add up fast. Also, sometimes the value of relatively cheap items, such as around $2 or so, is hard to gauge.
Perhaps a better way is to figure how much disposable income you make per hour (easily calculatable if you work either by the hour or salary), and figure how many minutes (or hours!) out of the work-week day you have to work to pay for the item.
A few bucks a day doesn’t sound bad, but may tip your decision the other way if you figure x% of your disposable income and N minutes of every day in the work week go to that item.
Wonderful site! I’ve been wandering around for an ethernity trying to prepare myself to my next task in the lab, and here I find the answers: GUIs!
My intention was to comment the same Rob S. already said, but instead I prefer to keep the original mind thread and look for more weird stuff… For instance: accomodation. A few months ago I read they were selling count Dracula’s castle in Transylvania (Romania): 1Million€ (~$785000).
A castle would last for all your life. Being a 26year old healthy guy, I expect to live until, let’s say… 86 (actually, I always expected to live until 125, but… ok), so that is 60 years = 21900 days.
Finally, the ratio is $35.85/day.
Hmmm… That’s a little expensive, but assuming I pretend to “breed”, there is a huge line of people after me, with plenty of days to improve the ratio! Ideally, to $0/day!!!
Let’s buy!!!
Hey Miguel,
Thanks for the comment!
One of the things I bought recently was the Rockband 2 game for my playstation 3. I’ve played it about 6-7 times, and the game cost about 200 bucks. So far, it’s been pretty expensive, but oh so fun!