How do you decide whether a thing is worth it or is it too expensive?

We do not really ask this when it comes to food or water or even transport. Nobody ever wondered ‘is it worth to eat’ or should I drink water, is it worth it?

However where to eat and what to eat or drink has not been an easy to answer. Should you have a food item at home (cost Rs. 10), at your club (Rs. 90), at a restaurant (Rs. 400) or at a 5 star hotel (Rs. 1200). This is surely easy to answer. So what do you do? Do you just choose on price or accept that the ambience cost has to be paid for?

When it comes to Term insurance how do you decide – what is the cost and what is the value?

Will my wife suffer if I were to die today leaving them without a bread earner?

Will my children go to school and college if I were to die today?

Will my wife’s family protect her or hassle her if she has no money?

Honestly can you answer these without batting an eyelid?

So somewhere between cost, utility, enjoyment, duty, peace of mind – you draw a conclusion. It is impossible to say which has a greater role. For example there is no duty or peace of mind in that dish you had in a 5 star hotel, but there is tremendous utility, duty and peace of mind in buying that Term insurance.

Makers of Garmin watches do not really care about the market in developing markets like India. I dare say that Garmin measuring tools would be sold more in India than in Europe -but the bias remains. These are expensive watches – they cost upwards of US$ 350- and have a very poor packaging. The strap breaks regularly and it is poor design for sure. However, if you are a runner, there is not too much of a choice – there is no alternative. Now what do you do?

Similarly if I suggested a Trek bicycle will you buy it? How much does it cost? Well about Rs. 40,000. Is it too much? Well what if you were to cycle say 20km a day? What if it meant you saved Rs. 1000 a month on petrol? What about the enjoyment and health benefits? Lets say we can add up all this and say it is worth Rs. 4000 a month. So this asset pays for itself in 10 months. Is it worth? Well I cannot decide that, but I can give you pointers.

Answer the following:

  1. Is it a necessity – then do not argue. Food, water, utilities, term insurance, health insurance – only decide acceptable cost.
  2. Is it your duty – looking after parents, children’s primary and secondary school education.
  3. Is it giving you peace of mind – burglary insurance for example. Take it.
  4. Is it giving you happiness – vacation – only decide on affordable pricing, not whether.
  5. Is it giving you Enjoyment?
  6. Is it something that you longed for and have now got it?
  7. Can you afford it?

So use this process and decide on all purchases – say above a particular cost..

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  1. This is something I always struggle with. Is is worth it even if I can afford it and how to say I can afford it. Say I have an MF portfolio of 2 crores and yearly take home of 30L from salary (after all cuttings say tax, PF etc). How to say I can afford an iphone? What about innova? or what about lower end audo or merc? How to even start putting a number? And after I decide I can afford it how to say it is worth it. A 15K mobile can do better things than iphone so why should I buy it even if I can afford it. Even with essentials like food, why should I pay 150 for coffee even if I can afford it? Only questions, no answers. I am an engineer and always like structured defined rules for decision making. But these things are so subjective that creating an algorithm is impossible.

  2. Kalyan

    Spending is little economics, little emotional. When a kid earning Rs. 500,000 gets his parents from a village/small town he takes them to a 5* hotel just to show them how it looks. Is that Rs. 2000 per head wasted? The parent feels so. What about the Coffee at a 5* hotel where you are sitting undisturbed with a client for 4 hours and striking a deal? Or that Rs. 4000 bag for your daughter’s 14th birthday. Maybe none of this is regular or usual – but you do it once in a while. A person may buy a Rs. 50,000 bicycle and a Rs.300,000 car – clear priorities. So difficult to say right or wrong. Yes, it should not hurt your regular goals like education, old age, etc. At 22 a person cannot live like a 55 year old knowing all this is ‘moh maya’.

  3. Have experimented with many brands be it shoes, gadgets, cars, electronics, apparel, laptops, hotels or even furniture over a period of 15 years.

    This is what I came to the conclusion. I can confidently say entry product of top brand is much better than top end product of cheap brand. Also last version of the top brand product is way better than the just released high end product (claimed to have double specs) from local/chinese brand. Also a suite in 3 star is no where near to standard room in four seasons.

    In stock market the brand is referred as moat. I personally visited many top brand manufacturing spots. Totally understand why their products are top class and the justification for high price.

    If someone tells me that he can’t afford iphone 7/Samsung S7, I would ask him to buy iPhone 6/Samsung J7.

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