Think Money Equivalent - the common demoninator

If you think in terms of "money equivalent," you'll find that it helps put things in perspective. It does this by providing a common denominator for various products and services, thus allowing you to make easy comparison.

The idea is simply that you can’t save money unless you can see just how much something costs.

Since money buys us almost everything, we should put a price on things to allow us to see the real cost of something before we jump in.

Get in the habit of assessing the cost of an item, so you can take the next important step and assess its true value. Only then will you know what something is worth to you.

When looking at cost, be certain to uncover all costs, now and in the future. Things like maintenance and upkeep, finance charges, insurance requirements, replacement parts, fuel consumption, storage fees, monthly fees, real estate taxes, and homeowners dues are just a few items that need to be considered.

Failure to see all the costs will mask the real cost of an item.

When you know the cost of something in dollars, it's easy to then assess how hard you have to work to pay that cost, because you can simply divide your hourly pay rate into the cost of the item. If you make $20 per hour, that $100 speeding ticket is more than 5 hours of your after tax labor.

That's a costly ticket.

Let's look at some examples to help clarify the concept of money equivalent thinking.

• If you're raising chickens for meat, you can buy a chick for $2 and spend $28 in feed to get yourself a full grown chicken for the barbecue or you can get one fully seasoned and cooked for about $5 at the nearest Sam's Club. $30 and you do all the work to raise, butcher and cook it, or $5 to just take it home ready to eat? The choice is yours.

• Once a man I knew spent about $21 to get his old station wagon up and running so he could haul off a bunch of junk to the dump. The dump fee was $10, so it cost him $31 to do it himself. He could have paid $25 for a special pickup and just put everything out at the curb. $31 and do the work yourself or $25 and let someone else haul it away for you. Which one would you have chosen?

Done with Money Equivalent, back to Mindset of Frugality