Really. For all purchases/decisions in my life, I try to remember this.
It's very simple actually. But it's really dependent on each person.
It's all relative so I'll just put higher or lower, etc
I go downstairs to buy my lunch. I look around the hawker centre. This is for a normal weekday lunch. I'm not here to entertain myself. I'm trying to get the best tasting food for the best possible price. To me, most lunches taste about the same. Noodles, economic rice, chicken rice, etc... Yes, there are slightly better ones. But nothing really exceptional for a normal lunch. Best value so far, economic rice, 1 meat, 2 sides + rice for less than SGD3, if you know where to find it. Compare this to chicken rice. Some flavoured rice + small chicken slices for about the same price. I'll pick the economic rice. This is the base best value.
One a day when I'm feeling good. I want to have a nicer meal. I think about the Korean restaurant. SGD10. Air-conditioning, lots of sides + lots of stir fried chicken.
Value = Nicer Food + Air con + A lot of Happiness
Cost = SGD10 + some guilt in spending more
Total ratio higher than economic rice today. I sometimes take this option.
But that's not all.
On another day when I'm feeling broke. I think about the same Korean restaurant. SGD10. Air-conditioning, lots of sides + lots of stir fried chicken.
Value = Nicer Food + Air con + some happiness
Cost = SGD10 + A LOT of guilt in spending more
The cost has increased significantly. I'll compare this Korean meal to Economic rice.
Value = Ok-ish food + no guilt in spending + happiness in spending less
Cost = SGD3
Total ratio of the same Korean meal now ranks lower than economic rice. Time to eat economic rice to sleep better tonight.
As you can see, happiness and guilt are arbitrary values. It's how much guilt you feel and how much happiness you feel. Personally, I feel a lot of guilt when spending and gain very little pleasure when spending. I gain a lot of pleasure doing free things. Cos the ratio is almost infinite. When costs are low, the ratio is large.
Another example, for trips...
Going on a long trip spending SGD6000 for 2 to Hokkaido
Value = WOW it's Hokkaido + nicer weather + 8 days + nice food + holiday after effect happiness 2 weeks after the trip
Cost = Full budget for the year + no real guilt as it's budgeted for + nothing more to look forward to for the whole year
Going on 4 trips to nearer areas for 2 costing SGD6000 for 2 for the whole year
Value = 5 days x 4 trips + ok-ish food + holiday after effect happiness of 2 weeks x 4 trips after the trip + anticipation for the next trip in a few month's time
Cost = Full budget for the year + no guilt + might be a hot place
The novelty of Hokkaido and nice weather wears out really quickly after going back to work. The happiness effect of having 4 trips outlast the 1 trip by a far far margin. Basically, most of the time people will forget the trip within a few weeks and with nothing to look forward to, it's going to be a sad rest of the year. I compare this to going on 4 trips. With the constant anticipation of the next trip, I always have something to look forward to. Even if it is back to the same place I visited previously. The option of going for 4 trips win hands down. There is some opportunity cost of not going to further places. I'll visit Europe/America/etc eventually. But not yet.
Let me go back to food as it's a really large part of my expense. I love to eat. But I hate to spend. So I always have this dilemma when eating nice things. I do like a nice steak like at Lawry's. Its EXPENSIVE. Here's what I sometimes do as an alternative.
I'm looking for some MEAT. I like Lawry's... Really... I think of the expense. About SGD100 for 2 pax if you use the 1 for 1 voucher. That's expensive. But I really want some meat. I go down to the hawker centre with an outlet that sells steak. I call 3 steaks. 1 for her 2 for me. Total cost SGD30. Not the best quality but YEA MEAT! Lawry's will be reserved for our birthday treat. Morton's is out... Dollar cost + guilt cost is so large, it drives the value / cost ratio to such a small number. (By the way, Pepper Lunch makes a good alternative)
I also love going to IKEA. Not for furniture. For food. For about SGD20, I can get meat balls + free coffee + mushroom soup + chicken wings enough for 2. It's pretty good quality stuff too. Compare this against McDonald's / KFC or other restaurants. It's really good value.
I even use this value / cost ratio for other decisions in my life.
I take MRT to work. I wake up early currently to take the free trips since I exit in the town area.
Value = Free trips to work + Paid to take MRT (visit insinc.sg to understand what I mean) + less crowd in train + success feeling of spending less than SGD30 per month for transport to work
Cost = Waking up early + SGD30 per month
Value = Waking up later
Cost = SUPER unhappy due to SUPER crowded trains + about SGD60 per month transport cost to work
Waking up early is a heavy cost. But it pales in comparison to the crowded trains. After adding the icing of free trips and even being paid to take the train early. I'm currently getting to work at about 7:30am.
Other instances where this ratio can be put to use could be at work?
Value = Pay + challenges? + pride? + career progression?
Cost = Number of hours worked + stress level
So depending on the arbitrary numbers.
How much do you value the challenges of your work?
Do you feel proud working where you work?
Do you feel satisfied advancing in this career?
How stressed do you feel? Are you depressed/suicidal?
The best ratio is to drop the cost to near zero. Then your ratio will be exponentially high.
If I'm paid SGD1000 per month to play mahjong for 2 hours a day. (If only there's such a job.)
But what if I'm paid SGD10000 per month to play mahjong for 20 hours a day?
Even good deals have a limit. So like always balance is a must.
I hope this post has been interesting for you. Hopefully, you feel guilt when spending as I find that this guilt is the driving force that keeps my spending in check. I truly feel very bad when overspending when I know I can get the same/similar benefit at a lower cost. Some friends ask if it gets tiring comparing and calculating so much. I just tell them, after awhile, it becomes second nature. It's normal for me to compare the value / cost ratio at a sub-concious level so essentially, all/most of my decisions have been made in this manner.
This is where the ratio fails to help me make the best decision.
Value = Ability to drive my car + happiness going out on weekends + convenience + happiness of not going through the "troublesome portion of selling my car" (see below)
Cost = EXPENSIVE + quite low guilt + troublesome to sell my car as need to repair before selling
If you follow this blog, my car is my biggest issue. I've made some references to it from time to time. Mathematically, the best thing to do is to sell it. However, the arbitrary value of not facing the issues outweigh the actual dollar cost. (I don't like to have to deal with mechanics to fix the car and the process of selling the car.) As I've said, many of these values/costs are personal numbers. Unfortunately, in this instance in my decision making, somehow, I am unable to make the best numerical decision.