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This Simple Calculation Will Tell You If You’re Getting Your Money’s Worth

Sep. 29, 2016 Wise Bread

Do you ever wonder if you’re really getting your money’s worth out of the purchases you make? I know I do. There are times when I buy something and then wonder, “Will I really use this enough?”

Luckily, personal finance blogger Mixed Up Money and her brilliant Twitter followers have come up with a way to calculate this.

Use Value

For everyday purchases, like clothing, they suggest giving items a “use value” of $1. If you spend $200 on boots, then, you would have to wear them 200 times to make your use value that low.

While this is a bit arbitrary and most people don’t actually count the number of times that they wear or use every single items in their homes, it can be a helpful way to think about new purchases. If you don’t plan on using something at least to the point where the use value is $1, then maybe you don’t need to buy it.

Use Value for Large Purchases

Use value is more straightforward for everyday purchases, but it can still be applied to larger ones. If, for instance, you own a home, you can calculate a daily use value. Let’s say you make a mortgage payment of $1,500 every month. Divide that by the number of days in the month — say 30 — and you have a daily use value of $50.

Again, this is somewhat arbitrary, but it will help you determine whether a purchase is something you want (i.e., do you want to spend $50 a day on the particular home that you have or are considering?). It can also help you determine whether you can afford it. Do you actually have $50 per day to spend on a house, or do you need to get your spending under control before you make the purchase?

Other Ways of Calculating Use Value

For certain purchases, you will want to calculate your use value differently. If you know that the one-time cost of doing something equals a certain amount, then you can decide how often you want to do it, multiply that number by the one-time cost, and see if it makes more sense to buy.

I did this over the summer with a paddle board. I love paddleboarding, and I knew that it was something I’d want to do over the years to come. I also know how much it costs to rent a board per hour. When I realized that over the next few years I would spend quite a bit more renting boards than I would spend if I just bought one, I went ahead and made the purchase. In this case, what mattered more was that the cost per use was less to buy than it was to rent.

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