To buy or not to buy, that is the question. We face it daily in our lives, whether it's something huge like a new home or car, small like a newly released album, or somewhere in the middle like a new computer, TV, or phone. My brother and I use a little mental calculation to determine the true cost of a purchase, and while not the main factor in a purchase, it definitely helps push us one way or the other from the wavering edge.
CAN I AFFORD THIS? It may make sense to most of us, but we shouldn't really be buying things that we can't afford. Americans are hugely in debt, to the tune of $14,570 per person, or so says creditcards.com. The initial question we ask ourselves is whether or not we can afford a particular item, and how it might impact our budget. On smaller items, let's optimistically say that it shouldn't much at all. Perhaps you've budgeted an allowance for monthly fun purchases, or are
fortunate hard working enough to really just be able to afford any little thing. Bigger purchases such as vacations we may deem a worthy splurge - after all, we've been working our butts off. Large purchases such as a car or home need to be carefully calculated and incorporated into the general budget. Generally speaking, the point is that the first question we ask ourselves is whether or not we can truly afford any given mystical object of desire.
HOW MUCH DOES THIS REALLY TRULY COST?
Okay, so the sticker price on that shiny new 50" 1080p LED TV says $1,999.99. But what's the REAL cost of buying this TV?
Experienced car buyers will constantly tout the phrase "total cost of ownership" as a barometer of the true cost of a purchase. In the case of a car it's (loosely speaking) the purchase price, interest (paid or not gained), insurance, maintenance, repairs, gas, etc. Tally up the total and that's your total cost of ownership. This is extremely important in cars when you're comparing say a purchase versus a lease, where you're presented with a single large sum versus a monthly sum. $299 per month sounds great compared to $29,999, but what's the true cost of that deal? Calculating the total cost of ownership will help you break down these barriers and determine what the car will really cost you in the end.
In the case of our television, the total cost of ownership is the cost of the TV, accessories (cables, mounts, universal remote, etc.), content, electricity, and repairs. Even if we don't use that over the top 40 year lifespan statistic, we're still looking at a pretty reasonable total cost of ownership for purchasing a TV, especially given how low the per hour usage cost is.
According to several reports, the average American adult spends between 2 and 4 hours a day watching television. If the average flat panel TV lifespan is 60,000 hours, that would mean your TV would stick around for 40+ years, which obviously seems a bit much taking into account factors such as number of household members, breakage, upgrading to new technology, etc. At these extreme numbers however, that's a remarkably inexpensive 1.7 cents per hour.
Unless you're watching over the air television, you'll need to factor in the cost of the content that you're watching, such as cable, satellite, DVD/Blu-ray, etc. The average American household has almost 3 TVs, so if we consider that a new TV purchase means you've likely already got the infrastructure in place to watch it, then we're really just considering the cost of the new TV. Of course in budgeting overall you should probably count the $100 or so you're paying per month for your cable and equipment. Electricity isn't free either and the cost has several factors. Again we're baselining our cost as simply buying a new TV versus increasing the amount of TV we're already watching.
Even taking into account the cable box and electricity, it's still far cheaper than say going to the theater or restaurant/bar (although generally speaking, quite a bit less social). An average movie ticket is supposedly $7.95 (although I've never seen it, as ticket prices are far over $10 in any of my local theaters) while the average movie length is over 2.5 hours. That's $3.18 per hour for your entertainment. I don't even want to begin to think about how much I spend eating/drinking out, and fortunately when drinks are involved there usually isn't too much thinking involved either.
And that brings us to value...
IS THIS WORTH IT?
Regardless of the total cost of ownership, ability to absorb/afford a high initial cost, or usage cost, we still buy certain things knowing that they might not be truly worth it. It becomes a question of desire overcoming value, or really desire increasing value to ourselves. If I really want something badly, then it becomes more valuable to me than to someone who may not care as much about say the new iPad. There's also a question of quality of life. If you really enjoy memorable photos, then it may be worth it to you to go for the nice digital camera. Or a question of necessity where for example if you business requires you to be in touch 24x7 then an expensive powerful smartphone might make you better at your job.
Of course these are all just excuses to buy fun things that we don't really need but just want. I can amortize and justify and breakdown the purchase all day long. I'll take it though, as I happily play with my new toys.