The Value of Money – Four Different Perspectives

coins 060Sometimes we’re challenged in the world of personal finance simply because we don’t understand the value of money. If we don’t, we’re in trouble because one of the functions of money is to help us establish the value of things. It’s easy to say that something is worth 15 dollars, but it would be odd to hear someone say, “That’s worth 15 heads of cabbage.” It doesn’t happen very often because money is how we establish value in the marketplace, so we need to get a better handle on what it’s worth. Value is a matter of perspective, so let’s look at some.

Here are four perspectives on determining the value of money. Each is a variation on things you may be familiar with or have heard others talk about. How you value money is a personal matter, so we all have to create and exercise our own style.

Let’s take a look at how we might put these perspectives to work in our lives in support of wiser financial decisions that ultimately help keep us out of debt or get us deeper into financial hot water.

How many twenty-dollar bills does this amount to? This perspective is the one I often employ when I consider car repair. A while back a guy told me that a certain repair on my car would cost about $120 dollars. When I considered skinned knuckles, an aching back, pinched fingers and all the cussing I would do for this particular repair, the idea of handing out six twenty-dollar bills just didn’t seem like many at all. You could do the same for any denomination, but I like to use Andrew Jackson when I think in terms of how many Federal Reserve Notes I’m handing out. It helps even more when you consider it’s just fancy printed paper. Six of those pieces of paper seemed like they bought me plenty of convenience and comfort…and a car back on the road.

What else can I buy with the same amount of money? When I look at the price of large flat screen televisions, it’s enough to make me shake my head in wonder. At first I question how watching on a big screen can be worth a couple thousand dollars, but it’s more likely that I stop and consider what else can be purchased with that money. It’s easy to find an operable used car for that amount of money, and I can probably register it, insure it and fuel it for two years for the same price as one of the largest flat screen TVs. Who in their right mind would trade occasional entertainment for being able to go to work for two years? Without a doubt, two years of employment could earn you enough to put a large screen TV in every room of your house, and likely a couple of the neighbor’s homes as well.

Is that a fair price considering other marketplace alternatives? I recently had the need for a VHS player. You know, that old video tape technology. Recalling years ago such units were selling for $30, and knowing that a DVD player can be had for $30, I was quite surprised when two retailers in my area had DVD and VHS combination players for sale in the $90 to $100 range. Even the modern online trading center of Ebay had units selling for $50 or more…for just a used VHS player. That was all the marketplace investigation I needed. The purchase would have to wait. I knew for certain I could get a VHS player at a garage sale during the summer for less than $10, and it’s quite likely I’d find one for $5. As it turned out, I put a wanted post on the local FreeCycle listing and it was only a matter of an hour or so before I had a reply, and a couple hours later I had the VHS player in its new home. Okay then, for the cost of driving into the next neighborhood, I had the VHS player that others wanted just way too much money for. That’s what I call a good value.

How many hours do I have to work to earn this? I suspect this question is one that is asked (or should be asked) more often by those earning relatively low wages. If you’re full-time employed and you make $100 an hour, you’re likely not worrying much about what the price of gas might be…one hour of work buys you about 30 gallons. But, you certainly would be concerned if your hourly wage were in the vicinity of minimum wage…one hour of work buys you perhaps three gallons, maybe even less. This is an especially powerful way to look at money because we often exchange our time for money. That means our money represents our labor, ingenuity, time and the overall “mileage” on our body, they’re all things we trade in order to earn our dough. When it gets personal, and we recognize the price we’re paying, we tend to pay more careful attention.

There of course are many other ways to determine the value of money, but I thought sharing these four might stir up some thinking. Are we using our heads when we make spending and investment decisions? Do we apply multiple perspectives to help us sort things out?

How is it that you determine the value of your money?

About Clair Schwan

13 Responses to “The Value of Money – Four Different Perspectives”

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  1. JMK says:

    When I am considering any nonessential purchase (which isn’t often), I try to see it in terms of a lost travel opportunity and decide if the trade off is worth it. Travel is the one nonessential expense we allow ourselves, so spending on anything else comes directly out of the travel budget. We never cut into the retirement savings or extra mortgage payments. A fastfood meal for the family $25. Which would be more enjoyable or memorable, the heat lamp burgers or admission to a great gallery in europe next summer? Fabulous shoes I don’t actually need vs gondola ride in Venice? Start adding up multiple purchases and I see it as losing several nights stay in a castle in the french country side. Long ago we decided that retiring early and a major trip every year with the kids in the meantime were really our only priorities. It makes if much easier to pass on anything else that might be tempting for a split second when you pause and consider what you’d have to give up to have it.

    • Clair Schwan says:

      JMK, your comment is spot on…everything is a trade off. When I hear people say, “I can’t afford that” I often chime in and remind them that it’s mostly what people “choose to afford.” Clearly, you’re choosing travel over other items that are discretionary. Again, it’s a trade off, and those trades are made or avoided deliberately, with other important trades in mind.

      That’s an excellent example of how to determine the value of money…it can get you this or that. And, you clearly have your priorities lined up; early retirement and becoming entirely debt free. Good for you.

  2. I normally try to think what else I could get with the money or if it’d really add that much value to my life in terms of how many hours it’d take to earn it. Granted I can’t work more hours and get more money at my day job but it is a valid comparison to know how much energy I did spend to get it.

    • Clair Schwan says:

      As JMK mentioned, it’s all a trade off. We need to understand how much of our effort we’re trading for what we’re getting. That’s why for some it’s “easy come, easy go” because they had no skin in the game in the first place.

  3. Laurie says:

    As we are new in our debt payoff plan, I often try to think of the value of money in terms of peace of mind. When considering a purchase, I ask myself “What’s going to bring our family more peace of mind; a meal out or $30 more toward paying off our debt?”

    Keeping in mind the long term reward for our family’s future, the answer is easy :-).

    Thanks for the thought-provoking post, Clair!

    • Clair Schwan says:

      Laurie, another great concept with respect to the value of money…peace of mind. Thank you for the input.

      I live in a windy area — I mean, really windy sometimes — and I build my own greenhouses. I build them with the assumption that they need to withstand sustained 100mph winds, so when the winds blow 80mph all night long, I sleep well and have peace of mind knowing that when I wake up in the morning, what I built will have withstood the Wyoming winds. Sure, it costs more to start with, but not nearly as much as the recurring costs of rebuilding them after what the rest of the country calls a “windstorm.” Here in Cheyenne, we just say, “It’s windy.”

      It’s the same when you finally get all of this debt behind you, it will feel great and give you peace of mind. And, whatever financial structure you build in the future won’t crumble because you’ll know that you’ve built it strong and stable, with a great foundation.

      • Laurie says:

        Clair, that sounds absolutely wonderful. I can envision it now. Can’t wait for our financial situation to be in that strong, stable place!!! Thanks for the encouragement – it was much needed today as the mountain’s looking mighty big!

  4. Matt says:

    I often use point 4 to evaluate a purchase, or needle my missus about one of her purchases, “I had to work 4 hours so you could have that!” lol
    Point 2 though. When flat screens came in, I remember everyone going out to get one. In fact 2 of my colleagues bought flat screens for Christmas. Me? I bought an enormous telly too, but it wasn’t a flatscreen, it was the old tube type which are now ridiculously cheap, because no-one wants these anymore.
    It cost me £80 (about $130) and it’s so big, I could barely squeeze it in the car to take it home, (does that mean I should buy a bigger car??).

    • Clair Schwan says:

      Matt, your story about the larger television reminds me of how I deal with improving technology…I just continue to use the older technology until it really begs to be replaced. Quite often we convince ourselves that newer is better, and it usually is, but the question becomes how much better and at what price?

      I can’t think of a better example than personal computers. I ran a business for about 10 years with the same computer…all at a time when folks were recommending replacing the technology every couple of years. For what I was doing, word processing and spreadsheets, my computer served me perfectly well, largely because I didn’t have anyone looking over my shoulder telling me that it’s “so old.” Well, I’m old too, yet I’m going to make do with what I have because it works just fine. 🙂

      By the way, no need for a larger vehicle or a larger TV, just stay with the smaller one and sit a bit closer. 🙂

  5. Dr. Sheba says:

    Number 4 is definitely me. Do you know how many times I remind myself of how many hours or days I have to work to be able to buy something? It really places a value on the item/service and puts everything into perspective. I usually end up NOT making the purchase.

    • Clair Schwan says:

      Yep, when you clearly have skin in the game, that’s when you can see the value of money and what your efforts can buy. It needs to get personal, then we end up making better decisions. It’s no wonder that those we elect as our representatives generally can’t seem to curtail spending…it’s not coming out of their pocket. One of my writers turned the table on her daughter and had her earn money for new clothes instead of just giving her money, and sure as shootin’ her daughter spent the money in a much more reasonable and responsible manner. http://www.self-reliance-works.com/2010/03/a-teenagers-money-management-lesson/

  6. eemusings says:

    Big fan of the ‘hours worked’ method – puts it in context good and proper for me.

    • Clair Schwan says:

      Funny how it seems to make so much more sense when we understand “where the rubber meets the road.” It’s one sure way to clearly see what we’re willing to trade/exchange.

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