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Do You Understand the Difference in Price and Cost?

| May 09, 2019
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For some reason, I do my best thinking when flying. As I’m writing this, I’m in the air at cruising altitude. I don’t travel much for work, and when you include those trips with vacations or Melinda and I going places, I might be in a plane 9 or 10 times in a given year.

Right now, I’m on the way home from an excursion with my professional coach and some colleagues and teammates. We spent a week in Southern Utah where we camped in snow, hiked up Angel’s Landing, crawled through Bloomington Caves, had firearm training, Brazilian Jujitsu, fireside chats about being better men/leaders/husbands/advisors, axe throwing, and it all wrapped up with some downtime in Las Vegas for a steak dinner, night out and now back to Atlanta on an 8:30 flight.

Given that I’ve been in Atlanta most of my life, my loyalty when choosing airlines is Delta. For this trip, I made a mistake that I try and help my clients avoid when doing their financial planning; I procrastinated, waited to the last minute and went cheap on my flight, as cheap as possible. By the time I was ready to pull the trigger on my flight, I couldn’t justify the Delta price vs. the cost of a discount airline. I’ll give you a hint their planes look like a school bus.

The flight to Vegas before we headed to Pine Valley, Utah was pretty uneventful. The flight home is something else. We’ve seen these videos on the news with unruly passengers and flight attendants. One passenger was nearly kicked off by a flight attendant before takeoff. The guy in the middle next to me is in a full snoring orchestra.  He hasn’t even noticed the three flight attendants wearing medical masks cleaning up vomit in the aisle because the lady in the aisle seat in our row has vomited all over herself about 10 minutes after takeoff. I’ve never been skydiving before but grabbing a parachute and bailing out of this tin can with 200 people in it doesn’t sound like a bad alternative at the moment.

As I’m sitting here, I’m thinking about a financial conversation I’ve had with some of my clients on “price vs. cost.” Notice earlier in the article I mentioned: “I couldn’t justify the Delta price vs. the cost of a discount airline.” PRICE versus COST. Most people don’t really understand the difference. You see, price is an accounting function. I give you this; you give me that. Cost is the overall long-term effect on wealth. In many cases, the price of something means receiving the VALUE of something else. I could have paid the Delta PRICE, waited in the sky lounge and had breakfast, paid $25 to check a bag under 50 lbs, watched a movie or two on the way home, complimentary drinks and snacks and the fact that since I went with a higher tier airline, I likely wouldn’t be sitting in a medical situation that I am now.

Instead of the value of Delta, I chose the cheap cost of the discount airline. It was about $100 one way, dirt cheap. Usually, I don’t check a bag, but since we were camping in below freezing temperatures, I have a lot of gear with me, so I needed to check a bag. I paid $50 online to check my bag only to find at the airport that this airline’s weight limit isn’t 50 lbs like Delta, its 40 lbs. My bag is 46 lbs. The up-charge for those six pounds? $30. No movie to watch because there are no screens in the seat, this is basically like a base model car. Extended leg room? No chance. First time in Vegas last night, a ginger ale over ice would hit the spot right now, $3. No complimentary drinks or snacks here.

I’m not complaining; I CHOSE this flight, I have to own the decision even though I regret it. I feel terrible for the lady who got sick. I doubt these flight attendants are pumped about cleaning vomit on what I would guess is their first trip of the day. I have no one to blame but myself.

The financial parallel is this. So many people know the COST or PRICE of everything and the VALUE of nothing. Want to enjoy the value and the reward of a strong marriage? There is a price to it. You have to spend time and effort on it. Want to save and invest to a $1,000,000? The price is you have the internal discipline to SAVE and INVEST money instead of spending it on lifestyle. Want to have the value of losing 40 lbs and feeling great? There’s the price of eating clean and exercise and behaving. Want to own $1,000,000 of real estate on your balance sheet? Those assets have a price tag.

To sum it up, I would encourage you to consider price vs. cost when making financial or even life decisions. If you’ve never considered price versus cost when it comes to your life and building your balance sheet, now is an excellent time to start. Send me an email at  [email protected], or a message on LinkedIn or on Facebook at my page, “Andrew Matthieson, Ashford Advisors” and let's get to work.

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