Possibly the most important aspect of personal finance
Price and value are at the heart of money and personal finance. Money is a store of value, and value is subjective
Each person is going to have a different perception of value. How much are things worth to you? How much value you get from a purchase or expenditure is going to depend on your situation, your values, your taste, and your awareness of opportunity cost.
Unlike saving and investing, which can be ‘solved’ (you can figure out a good solution for yourself and just automate the habit), value changes over time. How valuable something is will depend on how much time you have, or how much money, or what your other options are.
I am still working on understanding value and how that should drive my money management, years after reaching our financial independence number.
Things to figure out before you worry about value
Unless you sort out the basics of personal finance, worrying about value is not very useful.
If you are not earning enough to live a lifestyle that allows you to be happy, and have a bit of money left over to save and invest, you need to fix that.
If you don’t have an emergency fund, and are not investing at least a little bit each month, you need to fix that.
If you don’t have the insurance you need to protect yourself from catastrophic damage, you need to fix that.
*If you would like to learn more about these things, please check out our video course Stop worrying about money in Japan
*if you are serious about transforming your personal finances you might be interested in our course Your First Ten Million Yen
Once you have the basics down, understand your values
Prices are fixed (well, sometimes, as you can try to find lower prices or even haggle in some cases) while the value you assign to things is going to change over time.
Vital concepts include opportunity cost (what else could you do with the money?), the value of your time (how much money could you make in an hour?), and how much money you have (if you are wealthy, does it really matter whether the onigiri in this shop is 30 yen more expensive?).
Not understanding value, or not updating your understanding of value as your circumstances change, will likely lead to less effective spending and a lower quality of life.
One example of evolving value
My wife and I were planning a trip to the UK this summer. We wanted to take two of our grandkids. I started looking at flights and hotels and with the weak yen and post-pandemic prices it all seemed horribly expensive.
I decided it was too expensive and we couldn’t do it.
But then I realised I was using my old sense of value. Our circumstances have changed, we have a bit more money now and more importantly we might not be able to do this kind of trip again (grandkids will never be this age again).
I thought about it a bit more and decided that it was worth it and we could afford it after all.
How about you? Is value something you think about? Have you noticed your understanding of value changing?
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Yep going ahead with the trip is the correct call.
Many years from now I am sure you will have great memories of your trip, and you will not even remember the cost.
not exactly the same but reminds me of the phrase “they just don’t make things like they used too.” Often heard or said when admiring a well made, quality antique. But we need to think about what is NOT there anymore….the JUNK that got tossed. Companies continue to make items of varying quality, which ones are going to still be around years from now? The high quality products of course! High end IKEA furniture will still be around in 20 years but most of the rest will be in the landfill in a few years.
Two things that become more valuable as you get older: time, and good friends.