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Focus on total cost, not just price
W Edwards Deming was an American college professor who played a big part in Japan's growth to industrial dominance after the Second World War. He boiled down much of his philosophy of business into 14 simple points, many of which are as relevant to the person in the street as to big corporations. His methods were so successful, that Japanese business ended up trouncing their American competitors for much of the 1980s.
One of his points that particularly rang true for me was to focus on the total cost of something rather than just its price. Specifically, his point was: "End the practice of awarding business on the basis of price tag alone. Instead, minimize total cost in the long run".
This is excellent advice for everybody.
Let me give you a couple of examples of the type of thing I believe Professor Deming was talking about, but translated to the average person.
I know some people who would prefer to buy a cheap second-hand car to a newer, more expensive model. They figure a car is a car and if you can save yourself $10,000 by taking something older, that's just money in your pocket.
The problem with such old cars is that they often end up costing a lot more than newer models - in mechanical problems and inconvenience. If your car fails to start in the morning and makes you late for a job interview, and you miss out on the job as a result, then it may well end up costing you more than you saved. If it needs a large number of mechanical repairs, these can quickly add up. If you spend three hours broken down on the highway every now and then, your precious time is being wasted.
Often, cheap cars aren't as cheap as they seem. Their buyers don't take the total cost into account, instead looking at the price-tag.
This can work in other more subtle ways as well. I know quite a few people who refuse to get vendor certifications in information technology because they have to pay $250 to sit the exams. In the late 1990s, I sat three vendor exams at a cost of $750. Soon afterwards, I was offered a job paying more than that a day. Of course, the certifications weren't the only reason I got the job, but they helped.
By rejecting the certifications on the basis of the price-tag of the exam, those who refused to take them weren't looking at the total cost. If the certifications got them more than just one extra day's work, they were worth the price.
In most transactions you undertake, look at the total cost rather than just the price tag. If a cheap chair gives you back-pain, then the saving isn't worth it. If a cheap worker does a bad job, the total cost can be huge. If a $5 saving costs you an hour of shopping around, then it's not worth pursuing.
In all your dealings, focus on total cost rather than the price-tag. The rewards of doing so are well worth it.
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