My wife makes a loyal commitment to drive 8 miles to Costco to fill up her CRV’s gas tank. Although fruitless, I sometimes argue with her that it doesn’t save her anything. Let me explain, the gas price at membership Costco’s station is only about 15 cents per gallon cheaper than that of a gas station near our home. Her SUV’s tank contains about 15 gallons, but she pumps only 10 gallons for each purchase. That saves her about $1.50 each time. But the round trip to the Costco station is 16 miles long, and her car’s mileage is only 25 mpg. That trip costs her $2.00 for the current gas price of $3.15 per gallon.
So actually she loses 50 cents each time she travels to that station instead of filling the gas tank near home. I don’t say that you should never pick a cheaper gas station to buy, but when a long-distance driving is involved, it may not worth your effort. Furthermore, most people only see the dollar amount they save (like in my wife’s case, it’s the 15 cents per gallon saving), but not looking at the percentage as well. When gas price was around $1.50 per gallon, 15 cents meant 10% savings. But now the price doubles, that 15 cents only means 5% saving, and that’s not the same thing!
The example above doesn’t take into account the actual cost of driving such as your car’s wear and tear, share of insurance, and the probability that you get into traffic accidents that may cost your life. So is it worth it? Well, actually that’s the question we should ask for all decisions we make daily, “what benefits do I get for this cost?” And unless we don’t have any other choice, we shouldn’t do anything that costs more than its combined benefits.
The cost-vs.-benefit principle is applied every day in business. But in personal life, rarely anyone pay attention to it. There’s always something like sentimental value that most people consider “benefits” and are willing to pay for it. But to me, it’s simply cost, instead of any benefit. For example, you have a very old piano that you grew up with it. Since it keeps broken down, you decide not to spend money for repair and use it. However, you don’t have room to keep it in your house because you already buy a new one. But instead of getting rid of it, you rent a storage to keep it because it means a lot to you. Now, you have to pay a monthly fee just to keep your dear “memory.” To make it clear, that piano doesn’t have any antic value that you can sell later. Its only value is that it reminds you of your good old days.
Most people believe the piano in the example above does provide benefits, mental or emotional kind. But financially, it doesn’t make any sense to pay a storage fee for something that can’t generate monetary benefits. Isn’t sentimental value something negotiable? Especially when you have to decide whether you can keep up with your monthly rent or go homeless, it does make a difference! If you train yourself to be more practical (vs. idealistic), then little things like that can add up to big savings. In this context, you should define benefit as a potential to create money, or at least, save you money from the alternatives. And keep in mind that, if it costs you more than all the benefits you get, then you’re wasting your money.
Unlike businesses, most people don’t spend enough time to analyze their spending, but act according to old habits or instant impulse. Taking a little time every day to think about better ways to spend your money will eventually save you big bucks.