When we acquire things, mostly by buying or when someone gives it to us, we associate this object by its cost. “This costs half my monthly salary“, or “This looks cheap!”. While this may seem obvious from our perspective, in reality, this is only a part of its true cost.
There is an excellent article from Raptitude about this, titled Everything Must Be Paid for Twice. The author said that the first price is what we pay to gain possession of something. Once we obtain it, we must also then pay a second price, which is the effort needed to utilize and reap the benefits of that thing.
In order to maximize the value of the things we own, the article suggested that we:
Avoid paying any more needless first prices, and set your lifestyle around paying certain second prices, so you can finally enjoy the long-promised prizes waiting in your bookshelf, storage room, and hard drive.
This makes absolute sense. Sometimes when we buy an item, we also need to pay for the “second price” to benefit from it. However, when we explore this concept further, we will see that it actually extends beyond those two prices. There are two additional costs, which brings us to the true cost of things:
- Acquisition and purchase
- Storage and logistics
Cost 1: Acquisition
The first (and most obvious) is the cost of acquisition. As the initial cost we pay, we usually assume that it is the only one. But, as we will learn later, this is sometimes just the tip of the iceberg. Some examples of the first cost are:
- The money you paid at the store to obtain an item
- The downpayment you made for a house or a car
- How much a ticket costs to get to a concert or an event
There are also things that we acquire without paying for the acquisition cost. These could come as gifts or prizes and require no effort on our end to have them. Even if there is no initial cost however, there are still three more costs associated with it. In some cases, these additional costs may even be worth more than the item itself, rendering the gift as a liability!
Cost 2: Utilization
A thing, once acquired, is not useful by itself. Often, there is an associated effort or additional money needed to get the utility from that item. From a candy, a meal, a plane ticket, or a house, there is a utilization cost associated.
- After you buy tickets to an event, you then also need to show up to that event. That may involve transportation costs and your time to participate in the event.
- When you buy or receive a book, you need to find the time and mental space in order to read and acquire the information from the book.
- Paying the downpayment for a house or a car is only the beginning. You need to pay the mortgage regularly, or else your purchase will be forfeited.
- Buying a musical instrument does not automatically make you able to play it. You need time and dedication to practice regularly in order to gain the skills needed to play.
- Getting an online degree or a course does not stop by paying the tuition fee. Again, time and effort is required to unlock the knowledge from the materials.
As we normally do not want to waste our (initial) purchase of the item, we tend to pay the second cost in order to get the full benefits. But there are some items that we may deem too burdensome or inconvenient to pay, and in doing so we waste the cost of acquiring that item.
Can you think of something like this in your life? As a starting point, take a look at your bookshelf for any unread books or your subscriptions in your credit card statement.
Cost 3: Logistics
Now that we have the item purchased, we then need to think where we can put it. Depending on the size of the item, this cost can be small (like a book) or large (a machine).
If it is a book, you need space in your desk or your bookshelf to store it while it is not read yet. Look at your bookshelf. Does it mostly contain read or unread books? Why acquire a new one if there are still many more you can read instead? Which book would you remove in order to have space for the new one?
Note that this also applies to your digital bookshelf. Even if a digital book does not take a lot of disk space, it occupies space in your mind as it reminds you to read it whenever you open your bookshelf application.
Events do not take any physical space. It occupies another (more) important part of your life: time. In order to go to an event, it first needs to be added to your schedule. Is this event more important than the one you are supposed to do at that time? How long will this event take?
The second cost (Utilization) is closely related to the Logistics cost. The longer you procrastinate using the item you purchased, the more you pay in terms of logistics. Are you using the exercise machine you bought last month? Does making your room smaller because of this machine worth the price?
There is another hidden cost associated with Logistics: the Opportunity Cost. When we purchase something using a resource (such as money or time), we can no longer use that resource to obtain another. That other thing could be more beneficial than the one you just acquired.
Cost 4: Disposal
The final cost is the price of disposing the item. While this only applies to physical items, this is perhaps the most overlooked cost of all.
For smaller items, this can be insignificant and can be ignored. A book, for instance, can be donated or even resold to recoup some of the acquisition costs. For much larger items however, this becomes trickier.
Let’s say you bought a treadmill and installed it in your bedroom. A year has passed and you only used it for a few days. Most of the time you deemed yourself too busy or too tired to exercise. You essentially paid the full price of acquisition (Cost 1) but failed to pay the cost to utilize it (Cost 2). In the meantime, you are constantly annoyed at this large thing occupying a significant space in your bedroom (Cost 3). So you decide to get rid of it.
How will you go about it? Will you just leave it outside your house and hope someone else picks it up? Do you post it online and wait for buyers? How will you send it to the buyer? Maybe you need to hire a logistics service to help you move it out of the house, and that entails additional cost.
The price is more than money
As we can see, the currency that we pay for these costs are not just money, but time as well. And compared to money, time is much more valuable. Your time is a non-renewable resource. Thus we need to be mindful on what we purchase.
Now that we have an understanding of the true cost of things, we can use this framework to guide our decisions. Here are some starting questions we can ask ourselves when thinking about an acquisition:
- Do I need to spend more money, time, or effort in order to gain the benefits of this purchase? Am I willing and able to pay the price of utilization?
- What are the other things or experiences I can purchase with this resource? Can they be more beneficial to me than the current one I am looking at?
- Where will this item be placed in the house? Will this cause discomfort or stress in the long run?
- How easy is it to dispose the item once I decide I no longer need it? Does it require more of my time, money, or effort?
By answering these questions beforehand, this should help us make better and more conscious decisions when it comes to acquiring things in our life.
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