Financial Decisions Based on Marginal Cost

Do you decide things based on marginal cost or average/total cost?  In particular, when you want to purchase something, are you the type of person that sets a strict threshold for spending and will only accept things at or below your limit?  Or do you look at something and then assess what benefits you might receive for the marginal increment more? Recently, I was looking at printer/scanners, and was debating if all the bells and whistles were worth an extra 10-12 dollars. That seemed like a small amount to pay to get the increased differential functionality.  However, it made the total bill (with expensive ink cartridge replacements) higher than intended.   Interestingly, I vacillate between the two depending on the purchase, but I generally find marginal cost to be more logical.  Here are some observations:

–Don’t spend too much time debating and deciding over small decisions — I am a definite sufferer of choice stress, the phenomena where having too many choices, even if rather insignificant, adds to distress.  For relatively minor things, I try to make a decision of what to buy and live with it.

–Don’t allow the marginal benefit argument turn into overbuying for things you don’t need — it’s easy to succumb to a great sales pitch, for only 10% more, you can get all of these added benefits.  While in a few cases, this may be true, often it’s a poor excuse for overbuying.

–If you spend more than planned on something, look to compensate — one of the best ways to stay on budget is to find areas to compensate once an overspending item has gone through.

–If spending gets out of control, because you are tempted by marginal extras, shift to a cash spending where you can’t go over strict thresholds.

In the end of the day, I got the higher cost, higher function printer, I’m a sucker for consumer electronics.

shared at this week’s Carnival of Personal Finance