The Dollar Rule

The Dollar Rule vs. Your Stuff

Now that we've got a good understanding of the Dollar Rule, let's pick apart some purchases and see what makes sense. Is it okay to replace the computer every 2 years? New cell phone every 12 months? New shoes every 8 months? New TV every 5 years?

These are common purchasing decisions that we as consumers deal with all the time. Whether it is between you and your wallet, you and your spouse, or you and your parents, the definition of a "good deal" often has different meanings to different people.

We can easily visualize the frequent fights over dollars. It's all because of differing viewpoints, or more specifically differing Zero-points (or if you prefer the math term, it's the origin). Remember the simple number line from math class? The zero-point is there in the middle. Positive numbers go off to infinity on the right, and negative numbers go off to negative infinity on the left:

When two people are using different zero-points to determine how much they spent or saved, that's when the debate starts. If a person buys an $100 item at 25% off, did they save $25 or did they spend $75?

• Person A's zero-point is the original price of $100. If the item cost $75, then you saved $25.
• Person B's zero-point is $0. If the item cost $75, then you spent $75.

Unfortnuately both Person A and B could properly argue that they are right!

What the Dollar Rule can do for this debate is to standardize the zero-point to be always at $0. Why? Because we only care about how much money was spent, so that we can determine if the person-hours of usage/benefit was equal to or better than the purchase price.

In other words, it doesn't matter if that Lexus was on "sale" for only $35,000 (down from $40,000). You didn't save $5,000, you still had to spend $35,000. And to hit the break-even of DRR = 1.0, you better be getting 35,000 hours of benefit out of it.

Of course, a luxury car isn't a typical purchase for most of us. We'll be posting a series of Dollar Rule vs. X articles, to help us analyze some purchases that more of you could relate to (no offense meant to Lexus owners). You'll notice a bent towards Apple products. We just happen to like them. But we also want to be critical of whether these "better" products are truly "better" purchases as well.

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• dollar rule
• price comparisions
• shopping
• stuff

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