Friday, March 25, 2011

What do you get out of it?

This is a topic that most Americans never think about. Not only where your money is going, but what kind of things you spend on. At the simple level, durable items are things that you have for the long term, like furniture. Consumables are things like food, movie tickets, and gasoline. Generally, durable items are a better choice for concentrating your money, but that isn't the only consideration. And some things like clothes may fall between those categories, depending on the exact item you purchase.

The other considerations are: Is it a productive purchase? And is the level of the purchase utility or luxury?

To give some examples. A bed is pretty much a necessity, even if it's nothing more than a couple of blankets on the floor. A couple of blankets on the floor are utilitarian in the extreme, and most of us would pay a higher medical cost from sleeping on a hard floor than we saved by not buying a futon or mattress. A simple frame with a mattress, sheets and blankets are generally accepted in the US as a minimum bed. This is a good, durable purchase for utility. However, a $4000 brand new sleigh bed with a custom mattress that practically helps you out of bed in the morning with a custom made quilted bedspread and silk sheets may be a durable purchase, but definitely is also a luxury purchase. It may have resale value, but it may not either.

Food is a consumable, obviously, but also a necessity and productive (it is, after all, "fuel" for the engine of our bodies.) My bean soup or sporngj are definitely utility-they're cheap and nutritious and easy to make, especially if you buy the ingredients on sale. However, if you made the bean soup from organic handpicked beans grown by the signs of the moon on a farm in the center of a city and each bean was individually picked and inspected only by PhDs, you're probably paying a luxury price for that same pot of bean soup. BTW, I ate a lot of organic produce when I could afford it---or grow it myself, but I've seen some of it with prices that I could only account for by this kind of exaggerated method.

That explains durable/consumable and utility/luxury. How about productive? OK, I get $250 that was a gift with the requirement that I spend it on "something fun". I could spend it on new TV or on a sewing machine and fabric for quilting. Both can be fun (lots of people spend a lot more money quilting than the finished value of the products in a strictly practical sense) and both are "entertainment". But the sewing machine has the potential to be a productive purchase while the TV is not. You can use the sewing machine to make quilts which can become cherished gifts or even a minor micro-business. You can also use that same sewing machine to repair clothes (saving money) and make other things like children's costumes that you then do not have to buy. So, it CAN be productive. I said potential because if you buy it, make half a quilt and store it in the closet for years untouched, you might have been better off with the TV.

And then there are the items that fall squarely in the middle of all of these. Clothes, for instance. Say you have $100 to spend this month on clothes. Person A goes out and buys a name brand dress to wear to a party, wears it two or three more times, then it's too dated and sits in the back of her closet. Person B buys 3 or 4 pairs of pants and half a dozen cheap shirts at bargain store XYZ, and those that don't fall apart in the laundry are also dated within 6 months. Person C buys 3 pairs of really heavy jeans and 5 well-made "classic" sweaters from a thrift shop, clothes that she wears for 4 or 5 years  and has a little money left over to boot. Person D has a friend who does beautiful sewing, and pays her to make 2 simple A-line skirts for her that she wears to work for 10 years.

Person A made a luxury purchase, and while the dress may physically last, it really was a consumable since it was worn so few times. Person B made a utility purchase, but it was also consumable. Person C made a moderately durable utility purchase. Person D made a durable purchase, and paying for custom work might be luxury. But it is also productive since the skirts become part of her work wardrobe and look better since they are actually made to fit HER, so in this case, luxury probably depends on whether or not her appearance matters for work purposes. She also probably saves money over the life of her purchase as well as putting money in the pocket of a friend.

A lot depends on your particular circumstances. What's a luxury for one person is well within the budget of another and may serve practical reasons (an interior designer who entertains at home may feel that her $4000 bed is a "business" purchase). In general, durable practical goods are a better investment of your money than a consumable luxury item. Be realistic and honest when evaluating things (and evaluate everything this way).


Ami said...

Very interesting post. Seriously.

I don't usually evaluate purchases so thoroughly, I am more of the, "I need this, what's the best one I can afford and do I need it NOW or can it wait?" person.

Dawnfire said...

That can be a good strategy in it's own way, and from conversations we've had, I can't imagine you having problems prioritizing, except maybe on yourself. I suspect you already apply these things unconsciously. When you say it was interesting, did you get any ideas from it?

Amara said...

In regards to beds: I highly recommend doing research on an independent site before starting shopping - avoid the hyped tv adds. We badly needed a new bed because of my partners back problems were leaving him barely able to get to work.
After some research on coils, matresses and what to look for in a bed, I checked prices. For a firm, high-coil matress, the major matress retailers wanted 1000 dollars to start for a very basic queen.
However I checked out some alternatives - and IKEA carried what amounted to the exact matress we wanted for only 300 - even some extras like wrapped coils. 700 dollars saved, and the only difference is the name on the manufacturer.

Dawnfire said...

Wow! That's quite a savings, and $300 is a very good price for a queen sized mattress. Now if we could figure out how to get one from Austin without having to tie it on top of my car...