If you are interested in saving money on the things you buy, you have to start by being honest about what they REALLY cost. Lets look at an example of what this means.

Saving Money On The Swimming Pool

Jeff and his wife loved the idea of having a built-in swimming pool behind the house. It seemed like a great way to improve the house and a great way to relax on hot summer afternoons. They were going almost every week to the sports complex to use the pool there for $7 each, so they would be saving money on that too. They agreed with their logic.

The first quote they got was for $48,000, including all the tile work around it and the finishing touches. But they were smart enough to get two more quotes. The next one was close to the first. They finally found a company that would do it for $40,000.

Refinancing the house, they pulled out $40,000 in equity and had the pool put in. They did spend another $2,000 for the extras that they wanted, but over all they were very happy with the way it turned out. That first summer they used it almost every night for two months. The second summer, they used it less often, and grew a little bit tired of the work it involved. There was chlorine monitoring, filters to changes, leaves that needed to be cleaned out.

Jeff did most of the work himself to keep the cost down. Still, it cost them over $800 per year for heating, treating and caring for the pool. The thrill was gone by the fourth year, when they realized they had used the pool just eight times that summer. To save money, they stopped heating it when they weren't using it, but this meant that it was difficult to use spontaneously (it takes a long time to warm up a swimming pool).

After five years, Jeff got a new job and they had to move. Cleaning and repairing the pool cost $1,000, but it seemed necessary to get the house ready to sell. That, along with the $4,000 in annual costs over the years, added up to $5,000 for the time they had the pool. Then there was the $14,000 in interest they paid over the five years on the money they borrowed to put the pool in (7% annual interest). His wife was a bit shocked when Jeff showed her that it had cost them $19,000 for the use of the pool for the last five years.

They were also disappointed to learn that the pool didn't add as much to the value of the home as they had hoped. People like pools, but a $40,000 pool doesn't necessarily make them willing to pay $40,000 more for a house. Their real estate agent figured that the swimming pool added about $20,000 to the market value of their home. Sure enough, their home sold for just about $20,000 more than a similar one down the street that didn't have a pool.

Reflecting back on their "dream pool" Jeff started to wonder. Sitting in their new home, he took out a pen and a piece of paper, and started to add up the times they and their friends had been swimming in it. He figured the pool was actually used for a total of just 400 hours during those five years. Adding up the costs to maintain the pool ($4,000), the repair costs ($1,000), the interest costs ($14,000), and the capital loss ($20,000), and the extras they bought ($2,000), he arrived at $41,000. He divided that by 400 hours.

"$102 per hour," he explained to his wife. That is what the use of the pool had cost them. And they thought they were saving money by not paying $7 each to use the pool at the gym. Looked at another way, they could have gone to the gym every week and paid for a week-long vacation to Hawaii every year for less than what they had spent. But looking at it that way was too depressing, especially when Jeff thought about the time he had spent cleaning and caring for that pool.

This is an example of why saving money doesn't just require good shopping skills. It also requires a good look at the true cost of the things we buy and do, and an honest assessment of whether they are worth it. There are usually cheaper alternatives that are just as satisfying.