Posts tagged: control your money

Cost, Price and Value

By Derek Beese

We all know what these are, don’t we? Even so it is worthwhile to just think about these three words in a little more depth.

 

The cost of anything, whether manufactured or not, is measured by the amount of money spent on producing it. Easy! You find a stone lying on the ground, pick it up, and its cost is zero apart from the expenditure of your energy which has no monetary cost. So no cost!

 

The Price. Well, this is not a particularly pretty stone but it did sparkle a little bit which made you notice it, so perhaps someone will buy it from you. You assess what that someone might pay for it in money and try to sell it to obtain a little monetary benefit for yourself. That is its price.

 

Both of these are easy to understand, and will vary depending upon the cost of raw material, the amount of effort that has to be put in by people to make the final article, the complexity of the item, the quality and the final bit added on to make the whole thing worthwhile for the maker.

 

Good. Now we have the basis for doing business with other people. So what is this Value thing and how does it affect what has just been said? It is reasonable to think that the value of the product is the price that has been established by the above method. Well, not necessarily. That stone that we found and sold for the price we wanted, making us feel quite happy, was later found to be a gem class diamond and the price now is 10,000 times what we sold it for. Are we still happy? The stone is still just a stone so what suddenly gives it a “value” of such an enormous monetary sum? If it had turned out to be a piece of glass your assessment of price may well have been ok.

 

So what is value? The answer is very complex but can be distilled down to one basic thing and that is “Human Perception”. Value is what human beings believe. It is no more than that. You will probably react by saying “that is rubbish” and you are entitled to that opinion but look at some examples.

 

Diamonds are just stones which are found in the ground, but which are rare and when polished in a precise way sparkle brilliantly. The large ones are gem stones because people wish to use them to decorate themselves and to display how wealthy they are. The larger the stone the greater the rarity and the more it is perceived to be valuable. Millions of small diamonds and all the dust waste from the polishing process is used in industry for cutting tools because diamond is the hardest substance known to man, yet the price placed on this application is minimal even though it is far more useful.

 

A motor car is a very useful thing, it provides thousands of people with jobs to make it and when finished is good transport and continues to give people work to maintain it. A painting gives work to the producer and thereafter hangs on a wall and does nothing other than give some people pleasure when looking at it. Why then is a painting of sunflowers in a vase worth thousands of times more than a motor car? Why is a pile of house bricks stacked neatly in an exhibition valued at over a million dollars or a dead animal painted and preserved in an embalming fluid said to be worth millions? The answer is simply human perception of what these things are supposed to represent. In themselves they are worth peanuts.

 

A single tulip bulb at one time was so highly valued that people mortgaged all of their possessions and then borrowed more to buy just one single bulb. Fine until the mood changed and no-one wanted them any more. Very much a case of “The Emperor’s New Clothes”. People saw what they wanted to see even though it was not there.

 

Value is a very nebulous thing and is affected by the human perception of rarity, history and age when considering things but though we normally ignore it, it also applies to people. Sometimes the phrase “he/she is worth his/her weight in gold” is heard. This is a metaphorical statement not a literal one. It does not mean that because gold has a price of $700 an ounce today and the person weighs 200 pounds that his value is 200 x 16 x 700 = $2.24 million, it means that he is of inestimable value to humanity and all living things.

 

How do you place a value on that? Again it is a case of perception. The words associated with the assessment of human value are those such as kindness, helpfulness, compassion, consideration, charity, love, cheerfulness, happiness, honesty, cleanliness, trust. Those associated with a lack of value or even zero value are such as cruelty, unhelpfulness, evil, inconsiderate, egotistical, hateful, depressing, dishonest, dirty, backstabbing, untrustworthy.

 

So this simple word “value” is not as simple as it may seem. It is something that all people should take time to think about and to try to understand. What value do you place on the people you know or meet in this journey through life? What is even more important is what value do they place upon you and how do you improve their assessment of you?

 

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categories Money Matters | Derek Beese December 21, 2008 | comments Comments (0)

Who is in Control? You or Your Money

By Derek Beese

 

This may seem to be a very silly question but do you ever wonder at the end of the week where all your money went and left you with nothing? Many people do just that and it usually means that the money is in control. There is no plan and the money says “here I am, spend me on whatever takes your fancy”. There is a very old saying that “money burns a hole in his pocket” which is another way of saying that the money is in control!

 

This is a difficult thing to correct and for some people are almost impossible because they just will not admit that they are not in control themselves and until this fact is admitted to oneself, the cure cannot begin.

 

The cure is simple to say but often very hard to apply because it means that you have to make a set of rules and stick to them. In time they become second nature and the more you stick to them the easier they become because they become a habit.

 

What are these rules that give you the control over money? 

 

First you have to make a plan – usually called a budget by financial people. The Government makes an annual budget and all businesses make annual budgets and all charities make annual budgets and everyone who has to deal with money on a professional basis makes a budget. This is the first essential step to being in control of money. In simple words, it is their Plan for the year ahead. The estimate of what they are going to receive and how much they can spend and how much they have to put aside to meet unforeseen events. So rule one is make yourself a plan.

 

Rule two is to make sure that this plan sets aside a small amount of money which will not be spent – a regular amount. You decide how much because the plan is yours but those who are best at this try for about £5 out of every £100. This in financial jargon is five percent (5%). The word percent comes from the Latin Per Centum which means “for every hundred” so five percent means five for every hundred. If your income is two hundred then 5% percent is 2×5=10. If three hundred then 3×5=15.

 

Rule three is to open a savings account with a building society or the post office which is easy to do. Just go in and ask and they will lead you through the procedure. Make it one which has a branch office which you pass every week. Then rule three says that every week when you pass this office you go in and deposit your planned amount and leave it in the account. It is still your money but do not draw it back out. Try to make it the same day every week so that it becomes a habit to go in there for that purpose. Do not put it in a jam jar or a box for two reasons. One is that this makes it too easy to “borrow” and is a temptation that breaks rule two and the second is that money saved should be made to work for you. All the time it is in the savings account it will earn interest for you and if it stays untouched it will slowly grow larger without any action by you.

 

By the magic of compound interest the more that is in the account and the longer it is left untouched the faster it grows. In a building society there is no charge for this and your money is guaranteed safe by the Government up to £50,000.

 

Rule four is to stick to your plan.

 

Then you can say that you are in control of your money and your money does not control you.

 

By Russell Beese

www.beeseproperties.com

 

 

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categories Money Matters | Derek Beese December 9, 2008 | comments Comments (0)