The opportunity cost dichotomy

The flip side of the idea that quality doesn't come cheap means that as a consumer, you often have to pay a premium for something of value.

It could be a luxury item, something more stylish or cooler or modern. Something you can easily use to impress your friends.

Or you could be paying for functionality. Something that’s a better value for the money.

Or it could be convenience, something that saves time at a greater cost.

This seems like common financial sense, because it is.

Except when make mistakes.

We can often convince ourselves to pay more for things that we don’t actually value, often luxury goods at the expense of practical value. Like buying an iPhone instead of a Pixel, or staying a night in a boutique hotel when we don’t care for the aesthetics.

By failing to consider what we’re actually paying for against other, potentially cheaper, alternatives, we can seduce ourselves into paying a higher price for things we don’t need nor want.

Conversely, we might fail to consider what we’re not paying for or what we’re giving up when buying a cheaper alternative. Many people make the mistake of paying for a cheaper (and thus more widely used) option when the convenience of a higher priced one outweighs the cost of the markup. You might find, for example, paying a higher price for a gym that’s closer to your house or less busy is a better deal than paying for a cheaper or more congested one farther away.

Thus, by failing to consider what we’re giving up in exchange for not paying a premium, we can trap ourselves into paying for things (albeit at a discount) that provide little, comparative, value for the money.

Asking, “What am I paying for, really?” is a great first step in stopping to consider if your values align with what you’re purchasing.

But I’d follow it with:

“Do I value this thing I’m paying for enough to justify the premium? Are their cheaper, potentially more efficient, alternatives?”

and,

“By paying for a cheaper alternative, what am I giving up in exchange? Are those sacrifices I’m willing to make?”

T-charts (preceding decisions of all kinds) are a much better resource than most last-minute phone calls with a financial advisor, and they’re free.