Price Is What You Pay, Value Is What You Get

August 15, 2020 · by The Escape Artist

Imagine that Bill and Ted have gone trekking in a remote corner of the Death Valley National Park in the USA. They’ve been backwoods camping and were carrying all their own food, tents and equipment.

Unfortunately some coyotes stole all their stuff a couple of days ago and its taken 2 days to walk back to the edge of the national park towards the car park. Their water ran out a day ago and they’re still a full days hike in the hot desert sun from where their car is parked. Without water they won’t been able to keep going much longer.

As luck would have it, they then turn a corner and see a lemonade stand that has been set up by some enterprising kid. What a relief!

Then they see the price: the mini-entrepreneur is charging $10 per cup of lemonade when they know perfectly well that, at home in the suburbs, the normal going rate for a cup of lemonade is $0.50 a cup.

Bill pays the $10 with as much good grace as he can muster, acknowledging that this is a remote area and the entrepreneur’s cost of sales is higher out here in the boondocks. The kid is providing convenience and a premium service here so good for him. Plus Bill knows his chances of finding another lemonade stand before he collapses and dies are basically zero…so there’s that. Bill buys the lemonade, walks on refreshed to his car and drives home.

Ted has the $10 but refuses to pay because, well $10 is daylight robbery. He grumbles that its a total con, never gonna pay that etc etc. The funny thing is that Ted feels like he’s standing up for what’s right…but really he’s just a penny-pincher. Ted refuses to buy the lemonade and a few hours later he collapses with dehydration and dies.

OK, so maybe that example is a little contrived but I’m trying to illustrate a real blindspot: the problem with penny-pinching. Ted’s mistake was to focus exclusively on the price without thinking about value. Price is what you pay, value is what you get and the two can be very different. I’ve written before about the difference between frugal and cheap. It makes no sense to be penny-wise and pound foolish.

It seems like the next year or so is going to be tough economically so a lot of people are going to need Monk Mode. Lockdown showed what was possible in terms of living cheaper and cutting out unnecessary spending. The aggregate savings rate in the UK went from ~5% at the start of the year to ~30% during lockdown. Credit card debt got paid down at a record rate (every cloud has a silver lining).

If you are young / broke / in debt etc full-on frugality in Monk Mode should be part of your strategy. Monk Mode is also good for higher income people that want to break some of their bad spending habits. Some things are hard to do in moderation. If you are trying to get off heroin, cold turkey is the way to go.

To continue reading, please go to the original article here:

https://theescapeartist.me/2020/08/15/price-is-what-you-pay-value-is-what-you-get/