I had coffee with a colleague of mine a few weeks back and we had a lively discussion on the price versus the cost of items. I loved the concept so much I asked her to send me her a guest blog on the subject. I like the different perspective this gives us on purchases we make as we tend to focus on the obvious “price” but not necessarily the “cost” to us and the “benefit” received.
From a dollars and cents perspective, they often are – but not if you are using credit.
Bob and Karen go out for dinner. They have a great meal, a tasty bottle of wine and overall have a fantastic experience. The bill was $200.00 and Bob charged that to their credit card. Worth the price!
Unfortunately, Bob and Karen don’t pay off that card for a year.
So if the price of the meal is $200, what is the cost? Well the interest for the year on their 19.9% credit card is $22.24. So, effectively if they take a year to pay off that purchase, they have paid $222.24. Looks like the credit card company is getting a bigger tip then their server.
If you live day to day in your credit line or credit cards and do not pay off your balance in full each month, the true cost of your purchases can be hard to swallow. Moral of the story – pay cash and the price and the cost will be the same!
But wait, let’s add another perspective to this.
Bob and Karen, who are in the top tax bracket, have to earn $2.00 to have $1.00 to pay on the debt. So, effectively they had to earn $444.48 to pay for their meal. Or work approximately 8 hours (that’s an entire day) for that meal. Still worth the cost?
Something to think about….