Knowing the Real Cost: Your Key to Savings
posted on 11 January 2011 | posted in
Technology
As a personal finance teacher, every semester I am bombarded with questions from students who want to learn how to save money, and every semester I have one major bit of advice for them. The key to learning how to be a good saver is to learn how to recognize the true costs of things you buy. Most people, when they make a purchase, look at the dollar amount of the product and assume that this is the cost. The reality is, though, that this is not the case. The cost of that $200 pair of shoes that you might buy is not $200, the cost of the shoes is everything else that you could have purchased with that $200 dollars.
The same goes for your electricity. What you pay isn't the actual cost of the electricity - and that's why you should look for cheap energy suppliers online.
Economists call this concept “opportunity cost,” which is basically just a fancy way of saying that the actual cost of a product is every other thing that you could have spent that money on. When you start looking at that $200 dollar shoe purchase as having cost you a month’s worth of groceries (or worse, 8 nights out at the bar with your friends!) this will make the cost much more “real” to you, and will make it far easier for you to fight those urges to spend.
| |
|
|