Jars of Coins Growing

What Dave Ramsey Taught Me About Value

I was thinking this morning about a talk I heard Dave Ramsey do at Life,Church awhile back. (I think it was Life.Church, but I could be mixed up on that) He was talking about money in general, and how to manage and take control of our finances, but one of the interesting things that stuck out to me was what he had to say about VALUE.

A few of the definitions that merriam-webster.com gives for Value are below:

  1. the monetary worth of something : MARKET PRICE
  2. a fair return or equivalent in goods, services, or money for something exchanged
  3. relative worth, utility, or importance

Value is more than simply the price that we pay for a thing or service, but it’s the price in relation to the worth, utility or importance that we receive from such product or service.

He gave an eye opening example that illustrates this relationship between price and value. It’s been about a year since I watched this Dave Ramsey video, so I may have the exact details that he used wrong, but the concept that he conveyed rings true.

He gave the example of buying a dining room table.

Imagine there was a dining room table that cost $1500. This table is handcrafted, well made and durable. Due to the quality and construction of this table it could be expected to last for 30 years.

Now compare that table to a $400 table that is new and looks nice, but is made with cheaper materials and ultimately not very durable. This table may last about 5 years.

At first glance the $400 table seems A LOT less expensive, and we would think a better deal than the $1500 table.

But if we take a step back and compare the two options over the 30 year time horizon the numbers tell a little different story.

Option 1: $1500 table that will last 30 years

Option 2: $400 table that will last 5 years. So if we examine option 2 over the same 30 year time period, if we bought a table every 5 years that would mean we would have bought 6 TABLES.

So, 6 TABLES x $400 = $2400

So, over 30 years we would have paid $1500 for option 1 or $2400 for option 2. That would mean we paid $900 more overall or 60% more overall for the “cheaper” option.

So, which is a better value over the life of the product? The more expensive $1500 table or the cheaper $400 table?

Now I admit that sometimes there are budget constraints, and we may have to make choices on what we can afford at that moment. But this is a thought provoking idea, and can help us think through what value we are getting when making purchasing decisions. Just because it’s the cheapest option doesn’t necessarily mean that it’s the BEST option, and honestly doesn’t mean it will be the least expensive option over time when you factor in the cost of maintenance, upkeep, and/or replacement.