## Understanding Price Comparisons Versus Value

Let’s look at three examples of value determinations that use price comparisons as starting points. The key to getting high value is knowing how much you are getting for your money, and that means knowing more than just price.

Frugal living requires that you be adept at making comparisons between price, and also knowing something about value.

The following examples show that you really can compare apples to oranges.

Comparing Apples to Oranges. Let’s say we need to determine the value of apples and oranges. We can start with their cost. That’s an easy exercise in price comparisons.

Let’s say that apples are \$1.20 a pound and oranges are \$1.00 a pound. That gives us a dollar equivalent for apples and oranges. Now that we have a common basis for comparison, let’s move onto value.

Apples cost 20 cents more per pound, but does that mean we might have a better value with oranges? Perhaps. Let’s say that you eat 100 pounds of apples and 100 pounds of oranges each year. That means the difference is \$20 more per year for apples.

Since the \$20 is spread out over a year, the cost difference isn’t an issue to take note of. In other words, you won’t build wealth saving \$20 a year, and spending \$20 more per year won’t make you poor.

Next, do you like apples? Let’s say you do, but you absolutely love oranges. Okay, so that would suggest that oranges are a better value for you. You like them much more, and they cost a little less.

If we only know the cost of an item, we can only make price comparisons. We don’t necessarily know much about its value. There are other characteristics of products and services that we must consider to determine value. While we are looking at apples and oranges, let’s look at other characteristics that might suggest a different value determination.

Let’s consider shelf life. If you have to buy fruit in bulk in order to get a good price, then you will need to consider shelf life. In other words, when I go to eat the last item, will it still be edible or will it be spoiled by then?

Apples typically have a much longer shelf life than oranges. Some apples store better than others, and so not every kind of apple will have the same value in this area. If you want good value between apples and oranges, you might select a longer keeping apple. Understanding a perishable item's shelf life can be more important than price comparisons, especially when the price difference is minor.

Both oranges and apples come in different varieties, so you need to know something about that. Some apples are super sweet, but not as firm in texture. Some have a hard texture and can be quite tart. Oranges are different too. Some are meant for juice and some are meant for eating. Each has a different level of sweetness and a different taste.

Here is one last item to consider about apples and oranges when assessing their value. Let’s say you are going on a field trip and you need to pack sack lunches for a few people for a couple of days. Which fruit has higher value?

My thought is the orange.

Why? It comes in its own handy case. That case minimizes the chance that orange juice will make a sticky mess on the rest of your lunch. In addition, that protective case also keeps the fruit from bruising. Try saying that about the thin skinned apples that are often dented and bruised in the grocery store.

Okay, you can see that making a value determination isn’t the same as simple price comparisons. Sometimes the apple and orange are the same value, and sometimes they are not. It depends on what is important to you.

And who said you couldn’t compare apples to oranges?

Grocery Shopping. While we are on price comparisons and value determinations, I have to say one thing about finding values while grocery shopping. I have seen people pick up two items and compare prices, and then place the lower cost item in their cart thinking they were being thrifty in getting a better buy.

If you were to examine the unit pricing of each item, you might find that the lower priced item was more per pound or ounce than the higher priced item they were also considering. So, they ended up paying less for their food, but also bought less food.

The savvy shopper will try to get the most food for the least outlay of money by looking at unit price first and total cost second. With all other factors being nearly the same, you get more food for your money when you purchase food with a lower unit price.

Unit pricing is price per ounce, price per pound, or price for each item. For example, a 1.75 lb ranch steak at \$2.99/lb is \$5.23, while a 1.25 lb sirloin steak at \$3.99/lb is \$4.98. Even though the ranch steak costs 25 cents more, you are getting one half pound more meat. So, the more costly package of meat provides the better value. You get more meat for the dollar with the ranch steak.

Sometimes price comparisons can be difficult because each product isn’t unit priced the same. Some show price per item, some price per pound and some price per ounce. It depends on the item, packaging and way in which items are sold.

Carry a calculator if you have trouble sorting out how much food you get for your dollar. Here is a handy chart to help you convert standard measurements.

• 16 ounces to 1 pound
• 8 ounces to 1 cup
• 16 ounces to 1 pint
• 32 ounces to 1 quart
• 128 ounces to 1 gallon

Unit pricing came along many years ago to help consumers make unit price comparisons. It is a simple tool that is supposed to help us make good decisions. We should use it to help save money when grocery shopping.

A word of caution: I have noticed that squash and other vegetables sometimes sell for so much per pound, and sometimes they sell for so much each ounce. You can be fooled into buying a very expensive vegetable when prices are switched between “each” and “per pound”.

Watch for this “trick” while grocery shopping. I say it is a “trick” because the grocery store is like any other store – they have complete control on pricing. No product pricing is accidental – is it all done deliberately. So you too should be shopping deliberately.

Cutting the Lawn. If you make \$15 per hour and you are considering buying a good used gasoline powered lawn mower for \$30, it is easy to make a value judgment since you can think in terms of the common denominator – money.

First, the cost of the used lawn mower is about 15% the cost of a new one. Even if you had to buy another one to replace it, you still would be way ahead in terms of cost when compared with that one at the retail outlet for \$199. This is an example of price comparisons.

Now, let’s look at the value. The used lawn mower is now equivalent to two hours of your labor, and you estimate that it will last you for at least several years. For a tool that will save you hours of work year after year, it is a good value to trade the equivalent of 2 hours of your labor for such a time and labor saving device.

Next, if you are going to cut lawns to earn extra money, then the \$30 investment is clearly a great value since it now becomes a tool for making income. When you combine the low cost with high functionality, the exceptional value of a good used lawn mower becomes very clear.

Comparing prices or costs is one thing, but a focus on frugal living requires that you also be able to identify value.

Done with Price Comparisons, take me back to Are You Frugal?

There certainly is a broad scope of topics here at Frugal Living Freedom. When you think about it, money permeates so very many activities in our lives, therefore, being frugal encompasses a wide range of interests, from being employed to taking a vacation, and just about everything in between. Enjoy the variety, pick up some new ideas, and start making frugality a part of your signature.

I'm a big proponent of being debt-free, and I mean entirely debt-free - no mortgage payment. It's not essential for financial freedom, but you'll love the feeling once you get there. If you didn't have a rent or mortgage payment, how much more could you do for yourself with your current level of income? I suspect plenty.

If you ever hope to see an abundance of wealth, you need to plug the hole in your boat. The wealthy don't necessarily make lots of money, instead, they know how to hang onto what they make, and make it work for them.