If you want to be smart about personal finance you have to understand the difference between cheap, quality, and luxury in order to make wise purchasing decisions.
On the surface, this seems easy. But it takes some skill.
I’ve been labeled as a cheapskate, to the unaided eye.
But cheap people don’t buy $100 hiking shoes, $1,000 bikes, or $1,200 computers. Cheap people buy $30 hiking shoes, $150 bikes, and $300 computers.
Now, that’s not bragging about spending more on things. There’s nothing inherently wrong with buying a product that is less expensive. In many cases, it might actually deliver a better return on investment. But a cheap person buys the $30 hiking shoes, $150 bikes, and $300 computers precisely because they are the lowest priced items in that category.
I would never advocate that someone buy an item of questionable quality just because it has the lowest sticker price. Lets say you’re in the market for a commuter bike. You jump on a $150 big box store bike and minutes later jumped on a high quality $1,500 local bike shop bike to test them both out. Odds are you would be hard pressed to turn down the $1,500 bike. The fact that you can buy 10X of the heavy, slow, clunky, painful, poorly tuned bikes that sit in your basement because they result in a miserable biking experience versus just one good one that you’ll cherish for the next decade or two doesn’t make it a better purchase. Just the opposite.
You could make a similar comparison in many product/service categories:
- The $7 chef’s knife with the hollow handle that presents a struggle with every meal vs. the quality $35 one that seems effortless.
- The $20 backpack with poor stitching and no padding that falls apart after a year vs. the quality $75 one that lasts a decade or more and is super comfortable the entire time.
- The $1 toothbrush that leaves your teeth feeling grimy vs. the $20 electric toothbrush that makes them feel like you just had a dental cleaning after every brush.
- The $500 asphalt driveway that falls apart and needs re-surfacing every 3 years vs. the $2,000 concrete driveway that lasts 3 decades.
- The $3 per pound pink slime vs. the $10 grass-fed organic steak.
There comes a point, however, where value or return is greatly diminished. In fact, there is an entire category of products and services where the actual purpose is to market a product/service where the actual material value received is insignificant in comparison to the inflated price. This is what most refer to as “luxury”.
Quality vs. luxury:
- The $10 bottle of wine bought in a supermarket vs. the $75 “bottle service” in an upscale restaurant.
- The $100 watch that keeps perfect time vs. the $5,000 watch that does the same, but with a fancy name.
- The $10,000 3-year old sedan vs. the brand new luxury sedan for $60,000.
- The $1 bagel bought at the cafe around the corner vs. the $10 bagel brought to your room on a tray.
- The perfectly functional, high quality $50 purse vs. the $500 designer purse.
- The $20 pair of eyeglasses bought online vs. the $500 designer pair.
Luxury is a high price on a scarce object or service, often with a prestigious brand name stamped on it. The goal of the high price is to drive lesser class individuals out of the market. To separate the haves from the have-nots. So, really, the goal of making the purchase is to enhance one’s perceived status. In other words: inflate ones ego. A shallow, hollow, and fleeting effort, indeed.
So here’s the deal for the wise purchaser extraordinaire:
When comparing cheap vs. quality: buy whichever you predict will produce the best return for your investment. This is easy if there’s a small quality gap and large price gap (buy cheap) and when there’s a large quality gap and small price gap (buy quality). In all other shades of grey, you’ll need some help. Ask around, compare reviews, find out where it is made, what it is made from, buy from retailers with a generous return policy, go to an actual brick/mortar store and test out the products in person, wait for quality to go on sale – do whatever you can to reduce risk and shift the investment in your favor. Oh, and buy less stuff – that makes it super easy!
When comparing quality vs. luxury: there’s often a noticeable gap between the two in price. It’s there for a reason (otherwise, it wouldn’t be luxury, after all). Don’t confuse quality with luxury. Quality is about function. Luxury is about status. You’re better than getting into the status game – go for function over status.
What factors do you take in to consideration when comparing goods/services to one another?
When do you justify paying more for quality or luxury?