When is something too expensive?

By glblguy

My Dad and I had an interesting discussion the other evening. He currently has a standard definition TV and uses an antenna to receive local television broadcasts. With the upcoming requirement to go digital, he’s been trying to decide on what to do. His options are: purchasing a digital converter box, getting cable service, or satellite. He doesn’t want a satellite, but was considering going cable until I told him how much it cost.

He’s held off switching to cable for a long time, far longer than I thought he would. I asked him why, especially since his local service with antenna is not the greatest and he enjoys watching football games on the weekends and TV in the evening. His reply: It’s the principle. He just refuses to pay that much money for something. To him it just isn’t worth it.

When is something too expensive?

I thought about our conversation for a while afterward and it brings up a very interesting question: When is something too expensive? Of course there are the obvious answers: You literally don’t have the money or there’s no room in your budget to buy it without sacrificing something else that you need. But what if you do the money?

The decision really boils down to two things: Is it worth it? or What are you giving up or missing out on to get it?

Is it worth it?

This is probably the first decision process most go through. I go through this process frequently as I am sure many of you do. I enjoy talking on my cell phone to friends and family while driving back to the “big city” each week for my one day in the office. Having a blue tooth headset would be great, but given I only have couple more weeks of driving to do and given my speaker phone on my Blackberry works pretty well, I just can’t seem to justify spending the money.

The answer to this question is unique to each of us as it’s really based on our own internal guidelines about what is valuable and important. There are a few questions that should be considered by each of us though:

  • How often will I use it? i.e. Am I really going to get my money’s worth from it?
  • Do I want it or need it? Remember, a need is something you can’t do without.
  • Why do I want it? Do I want it because it’s cool and everybody else has one?
  • Did I consider the alternatives? Could I get an older model used? What other options do I have?

When considering purchasing something, taking a few minutes to ask the questions above and reflect on the answers should help you make a smart decision. If you still aren’t sure, wait 24 – 48 hours. If you still want to buy it after going through a 24-48 hour waiting period, than go get it.

What are you giving up or missing out on to get it?

This is what convinced by Dad to not get cable. He just can’t see dishing out $50 – $100 a month for television service. His argument? He could use that same money on an investment that instead of just burning $50-$100 a month would grow and provide a return on his money. I can’t argue with that.

Each time we make a purchase, we’re making a choice to not do something else with that money. We’re giving up something. Is what you are buying of greater value than the other things you could do with that money?

Like the previous question, the answer is very personal and there isn’t a right or wrong answer. To me, while I think cable is expensive, it’s worth it to me to pay for it. I like the channel selection and since I have a high definition TV I really enjoy the high quality of HD sports and shows. For my Dad, it’s just not worth it.

How do you determine if something is “too expensive”? What decision process do you use when making a purchase decision? Add a comment!

Photo by: sledhockeystar7

13 Responses (including trackbacks) to “When is something too expensive?”

  1. Dave Says:

    I personally use a tactic that I read in a book to help me get organized several years ago. In the book, it talks about getting rid of clutter and deciding on what to keep and what to get rid of. The phrase the book used was, would you be happier with the item, or the empty space left after getting rid of the item. When I moved a few years ago, that stuck in my mind. I was happier getting rid of a lot more than I thought I would be. I really wanted the empty space.

    Whenever I think about buying something expensive or a service that bills me each month (like cable TV), I think about if I would be happier saving that money towards one of my many goals, or would I be happier (in the long run, not instant gratification) with the item or service. This has saved me a lot of money over the years, as I usually chose to save the money and put it toward one of my many goals.

    Currently, I do have cable TV, but I have a roommate and we split the bill 50/50. They are moving out soon and I will cancel the cable TV. I already purchased my digital to analog converter box with a government coupon. I really don’t watch that much TV anyway, and the shows I do watch, I can watch over the air.

  2. Nicki Says:

    Hmmm … this has definitely got me thinking. I have the reverse decisions to make. We’ve made some poor financial choices, purchasing services and items outside of our lifestyle. Over the past year we’ve been slimming down, making choices between what we actually need and what we want. It’s been tough. There are definitely some wants that we’ve clung to a little too long. As I read your post I was asking myself those two questions and thinking how silly I am to cling to material things. Thanks.

  3. Peter Says:

    My wife and I just think about the opportunity cost of whatever we’re buying. Will the enjoyment we get out of the item be greater than the gain we would have gotten from contributing to the savings or other goal we have?

    We talked about this over black friday when we were considering purchasing a new computer and big screen tv. Even though we had hte money saved, we decided that the money would be better spent putting it toward our savings goal of 3-6 months of expenses.

    Once we reach that goal we can save up for those purchases and buy them then with no guilt!

  4. Mr. ToughMoneyLove Says:

    I understand your Dad’s decision but not quite following the logic. But that’s understandable also because for a lot of people there is no bright line test for what is “not worth it.” It’s a gut feeling and as long as the decision is not made on emotion, it is usually a good decision. I will speculate that your Dad probably spends some of his money on something that some of us would consider “not worth it.” That’s OK too as long as we are all spending within our means and saving what needs to be saved.

  5. Kristi Says:

    In my area, there is a better option than dealing with sub-standard reception or paying $50 to $100 for cable. We pay less than $10 per month for cable, but we have a package that the cable company doesn’t advertise. I’ve heard it called “antenna service”, but basically, we get regular local stations and several PBS stations, along with various shopping and local access channels. Our kids still complain that we have “bad TV”, but we just refuse to pay loads of money for something that encourages becoming a couch potato. But we do love our NFL, so we must have decent reception on the few channels that we are interested in.

  6. RDS at Smart Financial Values Says:

    I loved this post. I admire frugality and practice it in some – but not all – areas of my life. If money is tight one needs to be frugal. However, if you have more than enough to pay your bills, give generously, and save for long term goals, then you don’t need to be frugal in all aspects of your life. In order to get the most out of my money, my wife and I really spend time thinking about what is important to us. We spend far more on some things (travel and food) than many people do because they are “worth it” to us. Likewise there are some things that are almost standard in the U.S. (a second car, cable TV) that we do without.

  7. Make Friends, Earn Money Says:

    I like your comments about “Is it worth it? or What are you giving up or missing out on to get it?” In a business context this is often called the “Opportunity Cost” of selecting one financial decision over another. I think that the issue of expense will always be a personal decision because one individual’s concept of expensive is different to someone else’s, due to their financial position.

  8. Martin Says:

    Had to chuckle at Mr. ToughMoneyLove’s comment:

    “It’s a gut feeling and as long as the decision is not made on emotion, it is usually a good decision.”

    Gut decisions are nothing but emotion. Typically, the logical thing to do is directly counter to the gut, emotional, desire. Many times your gut may be technically wrong, but it lets you sleep at night (e.g. I have a friend who will never invest in stocks or bonds because he was burned twenty years ago). Sometimes you have to fight your gut and go forward with something based on careful thought and logic, or you’ll never learn or grow and you just stay in your small comfort zone forever.

    I think, as already mentioned, that expense, and hence frugality, can be realitive to each person and their circumstances. I think the questions presented in the article are good to ask yourself regardless of your circumstances, because we often only relate “expensive” to things that cost us what we personally consider a large amount of money. I think many people forget the side of “is this going to be useful, enjoyable, etc.”. I’ve seen people buy things they don’t need just because it was a “deal” or “they could always use another one and this is cheap”. Buying something you really don’t need just to toss it in a drawer or in a toolbox is expensive as well IMHO.

  9. Andy @ Retire at 40 Says:

    I find that my instincts work very well for me. Most of the time I either know that something is worth it to me or not. There is the odd time when I see something which is slightly too expensive and I buy it but also things that would be worth it but I don’t. Both of these happen very infrequently though, enough to not worry about it.

    Certainly the ‘repetitive’ items I’d have to pay for, like cable, get extra thinking time and in fact, it’s harder for me to justify those decisions since I know it’s something extra every single month I actually want it.