Monday, July 4, 2011

Is It Expensive or Does It Cost More?

Is It Expensive or Does It Cost More? 

Who doesn’t want a deal? Most of us are constantly looking for an opportunity to pay the least amount of money possible for whatever product or service we’re purchasing. 

However, over the years, I have noticed that some folks (including some so-called financial advisors) seem to completely miss the point that there’s a very sharp – and we’re talking huge – difference between something costing more and it being expensive. You see, just because a product or service costs more doesn’t mean that it’s expensive. On the other hand, something may cost less in absolute dollar terms but actually turn out to be very expensive.

Let me illustrate my point with this scenario, which I’m guessing will resonate well with the ladies – sorry, men. I promise, though, you’ll enjoy it, too. Let’s say you go shopping and end up in a Louis Vuitton shop. One thing leads to another, and you find yourself really, really liking the Sistina handbag, with a price tag of $2,200. You decide to splurge and purchase it – hey, you work hard! Then, come Monday morning, you go to the office and see a colleague with what’s supposed to be an “identical” Louis Vuitton Sistina handbag she purchased from a street vendor in New York City over the weekend for just fifty bucks, as in $50. Do I need to mention that hers is not authentic?

Let’s say the “leather” on your friend’s “identical” handbag begins to flake, and the interior suffers a tear after she’s had the bag less than a week. Here’s the million-dollar question. Would you say that your handbag was expensive? Of course not! But why? Because although they may appear to be so, yours and your colleague’s bags are NOT the same. Therefore, your handbag must, should, and does cost more.

You see, we often get sidetracked by what I term emotional tactics, so we wind up making unintelligent, irrational financial decisions. Am I saying that there aren’t any financial products that are legitimately expensive? Of course there are! What I’m saying is that instead of simply evaluating your alternatives based on absolute dollar amounts only, you’ll need to do exactly the opposite of that:
  • Begin by assessing and quantifying the output or value (i.e., what you’ll get out of an investment/product) at the end of the day.
  • Then, and only then, will you be able to rationally and intelligently evaluate the associated costs.
Generally speaking, all things being equal, most of us would expect an alternative that provides more value to cost more. But you wouldn’t (and shouldn’t) interpret this to mean that it’s expensive! Here’s something I find very interesting: Most of us unknowingly agree and even act on this principle; we like to buy stuff for next to nothing – not that there’s anything wrong with that. But then we want others to compliment us because the items in question are top notch (and, by implication, expensive). I don’t know many people who’d appreciate someone telling them their item is cheap and/or low-quality. 

Keep in mind that “expensive” and “costs more” mean different things when it comes to financial products.
Call Laser Financial Group today to schedule a complimentary session with a financial professional who understands the difference between "costs more" and "expensive." or 301.949.4449.

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