It’s so easy to think that when we buy something it costs whatever price is listed (plus tax). But do you really know how much you’re paying?
Jennifer and I have committed to wiping out her student loan debt this year, so personal finance is a topic constantly on my mind. And I ask myself that question every time I consider buying something: How much does it REALLY cost?
The next question I ask myself is: Is it worth it?
The difference between price and cost is the difference between living your life and living the life you really want to live.
The idea is so simple, of course, but most of us don’t think about it very much, if at all. We think about how much we’re going to spend at the checkout line or at the car dealership. We think about price.
But when we think about price and cost, it can change our lives.
And I’m talking about two types of cost.
1. Cost in terms of money spent.
Let’s take mortgages for instance. You may be approved for $300,000. But that’s not even close to how much it costs.
If you buy a $250,000 house, you have to take into consideration that you have to EARN probably $320,000 to pay for it outright. Why? Because you get taxed on your income.
But almost nobody pays cash for a house. Over the course of your 30-year mortgage at an interest rate of 6%, that beautiful new home probably costs you closer to $550,000. And did I mention the thousands of dollars you’ll pay each year in property taxes? Gulp.
You have to decide if it’s really worth it. Is it worth feeling stressed out all the time? Or being house-poor and not getting to do what you want?
Can you get by with less—a home that’s smaller but just as nice or in a less-expensive area? And what about cars? Do you really need a new one?
Living below your means—or what you’re approved for—stinks. I get it. But when you see the REAL cost of something, and not the list price, there’s an argument for spending less that you just can’t ignore.
2. Cost in terms of lifestyle.
It’s not just big-ticket items we’re talking about. Go to McDonald’s and buy a 99-cent burger and you have to think about the same kind of things: What’s the price of the food and what’s the cost?
Sure, I can afford 99 cents, but what will it do to my body? How will it affect my mood? Will it contribute to long-term illness like high blood pressure, diabetes, and heart disease? You have to decide if it’s really worth it.
And that’s really the question it all boils down to: Is it worth it?
Is this thing I’m buying today worth spending my limited dollars on? Will I actually be moving away from achieving my goals—whether they’re financial, health-related, or whatever—if I buy this?
When you think in terms of both price and cost, it very well may change the decisions you make and help you reach your real goals more quickly than you expected.
What are some of the things you’ve seen that are way more expensive than you thought? Tell me in the comments.