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Quality items that cost less are always worth more

Updated on May 22, 2009

Making a connection between Value and Money

 

The connection between money and value is blinding many into believing that the more money you pay for something the more your money is worth.or the more valuable the item your money is buying.It is,only true relative.to other items you might purchase with those very same dollars.

In real value though if you compare the price of the very same item purchased thirty years earlier,you might have paid a tenth the amount.

If you bought a house thirty years ago it may have seemed to cost you a tenth of what it would cost today,but is it worth ten times more today than it was thirty years ago?

no

Because of inflation

Inflation means the same amount of money is worth less according to the percentage of inflation adjusted for yearly and compounding where you pay interest on the remaining priciple year after year until the total principal is paid up in full By the time you pay off your thirty year mortgage you would have paid about three times the original amount although the value of those dollars is decreasing over the tears as a result of inflation,so the reasoning behind charging compound interest is that as each year goes by and each dollar you have to pay back is worth less,you need to pay more of those dollars to keep up with inflation. The idea that because you have more dollars means that your money has more value is just an illusion we are all living under.Young people don't usually understand that until they get older

Value is relative so we have to make decisions as to what value is based a multitude of factors.Age condition,the exspected life of a house or vehicle, interest payments,the amount of time to pay back.a loan,and last but not least any other terms of the loan agreement

 

A house if built well,can last for at least one hundred years,maybe more.To be practical lets just say a lifetime

If,.your thinking of buying a house and it's going to cost you more than 25 percent of your monthly income you can't really afford it if you have average households exspenses.also if the house is older you may have to do some repairs in the near future.

When it comes to a cars value durability,rust resistance,crash resistance,quality of materials and construction are important.

Lets assume you had a choice between two vehicles.

Thefirst vehicle is 6 months old but the quality is average and the odometer mileage is high over 60,000 miles

The second vehicle is two years old and quality is rated the same average and the odometer mileage is low 20,000 miles

Your job is to figure out which is, the better buy assuming everything else on each vehicle is the same .They are the same model ?

Well,the first vehicle being almost new is too it's advantage,it's quality is mediocore and someone may have been driving it too much relative to the age of the vehicle.

The second vehicle is older than the first one and you need to know how much older ,if it's more than four years older then the odometer mileage is of utmost impotance.Even though the second vehicle is older the mileage is much lower ,so in my mind with everything else being equal I would pick the second vehicle even though it's older if you average the miles per month the mileage is less than 1,000 miles per month and the mileage per month on the first vehicle is 10,000 miles per month.

 

money

Which is worth more at the bank and why in the comments section

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