People love to save money but there is almost always a cost to it.
This reality is illustrated in a silly example from my life:
My wife and I are avid users of the library. A couple of years ago, whenever we had a book that might be overdue if we didn’t return it right away, we’d just drive it down to the library (which isn’t that far from our house). But today, even though library fines have risen, the price of gas has risen much more and we weigh the cost of driving our car to the library versus paying a little more in fines to return the book another day.
Yes, that’s a silly little example and it really boils down to a difference of a buck or two. No big deal. But it illustrates the way people SHOULD think when they consider the cost of saving money. However, I’m surprised at how often people don’t think along these lines.
Instead, they’ll drive long distances to use a coupon. Or they’ll take a vacation we never intended to take because it’s ridiculously cheap.
The problem is, we don’t calculate all of the costs when we buy something.
Here’s another example, taken from a slightly different perspective: I have family who live a couple of provinces away and they don’t always understand why I would rather fly out to visit them instead of driving to visit them. They say it’s cheaper to drive because they are comparing the big initial price of airfare against a seemingly small price of driving. But driving is expensive: Fuel in my SUV isn’t cheap. Neither are the two nights of motels (1 each way), food, and the very-hard-to-calculate cost of wear and tear on the car. But the biggest non-calculated price is time. Regardless of how many times I’ve tried to explain, they don’t get that I can work for an additional 3 days if I fly compared to if I drive, thus (approximately) working off the cost of the flight. (Oh, and let’s not ignore the fact that I feel SO MUCH BETTER by only spending a couple of hours in the air instead of how I feel after a solid 20 hour drive in one direction!)
This reality was highlighted for me once again when I read this story: Toronto motorists line up for 50 cent gas. To give my American friends a quick conversion: Gas tanks are about 60 liters, gas prices are $1.35/liter ($5.12/gallon) and in this story, gas prices had dropped to $0.50/liter ($1.90/gallon).
So here’s the part that drives me crazy: According to this story, people lined up for 2 hours to get gas. Now, some people might say “it’s worth it for that price!” but I say it isn’t:
They were saving $0.85/liter ($1.35 – $0.50). If their tanks were bone dry, that means they’ll pay $30.00 instead of $81 for an average-sized tank of gas. Sounds like a great savings of $51.00 until you factor in the cost of being unproductive for 2 hours. In other words, the people who lined up for gas spent 2 hours to save $50. That works out to a value on their time of $25/hour.
Now the argument could be made that they weren’t going to be productive in those two hours anyway (maybe they just left home early to get to work) but I believe that we all have a value on our time, every single hour of the day, every single day of the year. That value might be expressed in dollars, although there are other ways to measure value. For example, if these people weren’t being productive at work for those two hours, fine. But could they have spent those two hours studying investments to do a better job saving for retirement? Or maybe they could have spent those two hours starting a business? Or maybe they could have spent those two hours with their kids? Certainly the two hours should have seemed more valuable doing any of those things than waiting in line for gas!
And here’s another example I discovered when I was a stockbroker: People who put their money in the bank think they are saving their money. But the interest they get on those deposits (if they get any interest at all) doesn’t come near the cost of inflation, which usually rises at about 3% per year (and is rising much faster right now). So these savers were getting maybe 1% of interest on their money and they were paying 2% in lost value to do it.
We’re all guilty of this in some way. To give you some examples from my own life: I do my own taxes when, if I really think about it, I have to admit that it’s cheaper for me to give them to my accountant to do. (The problem is, I perversely enjoy my taxes and like to keep a tab on the various line items in my taxes). I also do my own administrative work when it would be much cheaper to hire someone to do it for me. However, I spent a lot of money on an assistant a while ago and don’t feel that I got the value I wanted to get from her so I’ve since pulled my administrative stuff back to me for a while. As I write this, I am reminded of the cost of doing the work myself and I think I should probably find an assistant again.
How much are you spending to save money in your business… and in your life? How do you value your time? How do you value the other assets you have? What areas in your business (and life) could you revisit and realign your expenditures to your values? Most of us are guilty of this to some degree but only those who understand the value of their time and assets can make the best decisions about how much they are willing to spend.