This is difficult to explain. I can’t figure out a rule of thumb for spending, the prices of things fluctuate so quickly it’s confusing. Here are some examples
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A house, prices are out of control, inventory is low, sellers are greedy. I’m feeling not only unable to afford it but finding lack of value in inflated prices
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Computer parts. Relatively cheap compared to pandemic but more expensive than before but also much cheaper than 90s/00s, but still could be cheaper
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TWS earbuds, completely different ball game from regular earbuds, disposable electronics.
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Food. Nights out with drinks now sometimes cost me more than 2 & 3, but seem like just keeping up with inflation
The prices range from 100,000s to 100s, but some are fleeting, some semi permanent, some last a long time. I also spend hours researching prices of parts and waiting for sales, but spending the same amount on social events in an instant
I think we’re seeing large scale price gouging.
Their arguments assume businesses operate in good faith. We fundamentally know that it’s not true, from overseas child labor by fast fashion to coal mining to IT security. This economist of theirs can fuck off
The bigger the business, the more likely they make their money unethically.
Economists work for the economy, which works for shareholders.
Yeah, definitely business taking advantage of COVID era shortages that caused prices to spike, and continuing to carry those prices despite not having the same shortages anymore.
I find it funny that the four major categories of spending you chose are: housing, computer parts, food, and tws earbuds.
Those aren’t the major categories of their spending. It’s just four examples.
Yes, very odd bucket list.
Reminds me of this old meme: https://i.kym-cdn.com/entries/icons/facebook/000/022/868/Screen_Shot_2017-05-02_at_2.43.53_PM.jpg
You can tell it’s old by the amount in rent 🥲
And the low cost of candles. Those were the days.
Just my recent observations, I guess it would be gadgets, housing, experiences
How the fuck are TWS earbuds so cheap?
Prices don’t make sense because you, as a regular person, don’t see the overwhelming majority of what contributes to them.
For instance, I figure you aren’t particularly familiar with the output quantity of various semiconductor factories around the world, the overall percentage that are good enough for high end computers, and how many different companies around the world need them for their products, and in what quantity. Or even on the consumer end, how different use cases effect demand, along with how the various brands stack up against each other in their current offerings.
Yes
Put the cost of things into terms of hours you would need to work to cover its cost. On an individual basis, you know very well how to gauge an hour of your working time, and inflationary effects will become apparent when there is something you used to buy routinely and suddenly find you have to work two or three hours to cover its cost.
Product pricing actually has very little to do with what the actual product costs to make, other than to determine whether it is financially viable to produce.
Rather, the aim of a seller is to maximize their profit by choosing the most efficient selling price for a specific demand. For a house, demand has greatly outstripped supply, and a buyer requires a place to live, so prices are high. Similarly, during the pandemic, the utility of computer parts was high and demand was high since many had to work from home, so prices went high.
It certainly gets more complicated than my (ECON 101 level) explanation here, but companies have just been taking advantage of a high demand for things and for people’s needs (e.g. housing and food) there is little to no pressure to reduce costs as demand is poorly correlated with price (inelastic).
If you’re looking for a rule of thumb to decide if something is worth the price, I have a basic method that helps me:
Don’t think about the thing itself, think about what it provides to you. Say you are thinking about buying a GPU to play games on your computer. The one that seems like the best fit costs $400.
What will that GPU provide you? You will get to play the games you want for about 5 years on average before the card starts to become too old to give you solid performance anymore. Or maybe you’re not too picky on framerates and settings, so it will last you 7-10 years before your next upgrade.
Consider how many hours of enjoyment you will get by playing games for the next 5, 7, 10 years. 5 hours of gaming a week, 52 weeks a year, 5 years gives you 1,300 hours of enjoyment. Now divide the original cost by that number. In our example, that’s roughly $0.30 per hour of enjoyment.
Does that feel like a good price for fun to you? If you could go to a magic vending machine, pay 30 cents, and feel enjoyment for an hour, would you?
That’s how I think about purchases, and it helps me quantify the value better and make purchases that are likely to be a good value to me. It also encourages me to use things a lot for a long time to get an even better amount of value out of them, which in turn is more environmentally friendly and helps me avoid the traps of rampant consumerism. Win win win.
Hope that helps!
Dude where can you find that magic vending machine? I meed one.
For me, it’s my computer lol.
Utility, not market value.
I reckon the utility of our house is equal to some % of the average or median (probably median) wage in my city, plus some premium for it being a house not apartment. Calculate that monthly or annual amount and back into a reasonable cost of housing.
Market value of the house is what I could sell it for. Right now that is much, much more than what a house is “worth”.
Which leads to funny conversations because I think we overpaid for our house & husband thinks we got a good deal. And both are true.
Sometimes fun things go by very quickly 😉. But it’s the same rule of thumb I have for content and games
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No doubt there is no value to buying a home in a lot of areas rn.
I rent a 2 br townhouse for 1800/mo. I have a detached garage. I have a basement with washer and dryer. I have about about 1200 sqft plus the basement which is unfinished. Utilities combined is 200/mo. Heat is included.
A similar unit would be about $300k. I’d get probably 8% interest with a 750 credit score. I’d have basically the same mortgage as I have for rent. Plus I’d be responsible for stuff I’m not right now, like heat, water, sewer, trash, recycling, lawn care, and literally any maintenance.
It’s a way, way better deal to be renting right now I many areas.
That’s what a lot of people fail to understand. It isn’t just the price of the house. It’s everything else included (maintenance, replacement,taxes ). If over the very long term it’s cheaper to rent then probably just rent.
If over the very long term it’s cheaper to rent then probably just rent.
A major thing to consider is that you’re building equity in the house. If you’ve paid a year of rent, you don’t have anything to show for it at the end. You’ve just helped the landlord pay off their loan. On the other hand, if you’ve paid a year of your own house payments, that money has gone towards your loan and you’d get more money back when you sell the house.
If you’re comparing renting vs buying, you need to consider growth in value of the house and increase in property tax (for buying), and average yearly rent increases (for renting).
Owning a house can be stressful with all the things you need to do, but it’s also really nice being able to do anything you want with it, and not have to deal with landlord-quality “fixes” when things break.
Absolutely all true. Although I did say Everything else included. While yes you are building equity… If at the end of your ability to live alone, you have spent more by owning then renting (read this as significantly more) then it might have been wiser to have rented and invested the difference. Again people have to look at ALL the options.
I implore anyone to look into this historical fact:
The Bush’s sold GW’s childhood home a few months ahead of an economic recession. They rented across town for a few years while they assembled a ‘historical society’ to rebuy the home after the housing crisis. It is now a museum in Milton, MA.
This happened in the mid-late 80s.
Even the ultra wealthy rent, when it makes sense economically to do so.
Owning is great and equity is important. But you don’t need to set owning a home in a pedestal.
Can you say where you’re located because that sounds like a screaming deal. I’m in NYC though, so everything sounds affordable to me.
from those numbers sound like midwest away from a city
Incorrect.
I am in new England, and close to a metropolitan area.
oh wow. nice.
To clarify, neither Boston nor New York city. But still! It’s pretty great, and a $2000 mortgage for a 300k property makes no sense while I’ve got this.
With rent you’re just paying to live there. With a mortgage every payment means you own more of the place (equity). If you have payed off the mortgage or didn’t need one then you have equity that you can use for last-ditch funding.
Yes, but managing that equity comes at a cost itself.
If a hurricane comes and floods my basement, it is 100% $0 to me, not my problem.
And, more importantly, I will have more capital available to me to be a first time home buyers by being patient, which will allow me to build equity faster in the long run.
Good point on the basement but the overall concern seems to be that the cost of real estate (including renting) is getting so it’s not feasible for most people to move along from just renting (if they choose to).
Yeah, but that will create a supply issue
Either prices or interest rates will fall. Or the oublics buying power will Increase.
wHaT’s EqUiTy?!
If you’re looking at 300k @ 8%, youre not going to be paying anything similar to your current rent. I got a place for 190k @ 6%, and I’m paying about 200/mo less for my mortgage than you do for rent. At that rate, I’d be surprised if you got out under 2500/mo.
did that include taxes being paid from escrow? He might be doing a simplified thing and did not include taxes and such. Something I think to that people don’t realize with mortgages is the excrow part can go up so the monthly is not completely locked in.
Yes, as stated below that includes property taxes and insurance, things that this person likely isn’t thinking about and isn’t figuring into their monthly payment. I hope I’m wrong, but I’ve watched friends crash and burn doing something similar.
8% of 300,000 is 24,000.
That is $2000/month.
It is basic arithmetic.
That’s not at all how interest is calculated on amortized loans
Yes it is.
There are a few factors that modulate this, very slightly
0 down on 300k at 8% yields a 2025/mo mortgage.
It is basic arithmetic.
No, it’s not.
You’re rationale that 8% of 300,000 = 24,000 therefore $2,000/mo., by dumb luck, comes close at 8%.
- 12% of 300,00 = 36,000/12 = 3,000; actual is $3085/mo
- 8% of 300,000 = 24,000/12 = 2,000; actual is $2200/mo (not $2025)
- 4% of 300,000 = 12,000/12= 1,000; actual is $1432/mo
- 2% of 300,000 = 6,000/12 = 500; actual is $1108/mo
- 0% of 300,000 = 0/12 = 0; actual is $833/mo
It’s algebra, not arithmetic.
P = (r * A) / (1 - (1 + r)^(-n))
where:
- P is the monthly payment
- A is the loan amount
- r is the monthly interest rate (APR/12)
- n is the total number of payments
Do you live in some world where PEMDAS/order of operations isn’t basic arithmetic?!
Jfc…
Even we Americans are taught this shit by age 12.
Seriously.
PS., it is $2025. Source: qualified. Decided to wait until $2025/Mo gets me something worthwhile. Your basic arithmetic failed to include the handful of factors that mitigate these numbers slightly zip code/taxes, hoa fees, etc. still, basic fucking arithmetic.
Stay in school.
Not sure how zip code factors into “simple arithmetic” but you do you.
Sure, if you ignore all kinds of other factors like additional closing costs added to your mortgage, as well as stuff like insurance and property taxes and the interest on the loan itself. But yeah, simple arithmetic…
I wish it was as easy as just a percentage of the mortgage every month
The offset to the basic arithmetic is negligible.
In my case, a $300k home would yield a $2k/mo mortgage
Source: I’m fucking buying a house.
Jfc y’all
It is basic arithmetic.
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well if you want a basic idea of how prices work, then study some economics, as that’s a big part of the fundamentals economists learn. Essentially a bunch of funny curve shapes that try to guess how much people will want to pay for something. Those curves change shape based on interest rates, how necessary an item is, how easy or cheap it is to make a lot instead of a little, and so on and so forth. We can use them to predict stuff but so much of economics is ultimately unpredictable because it relies on human factors.
In terms of how you behave, there’s a few elements to it. With events, the window of opportunity is limited, while you can put off a new device purchase, you can’t postpone the concert as an attendee, so you can’t wait for a sale and FOMO is strong. Many things where you tend to impulse buy are presented as an offer you “can’t put off til later”, so you have to step back to see if you really need it now. Best way to try to even it out is to budget before you start checking current prices and see how they compare.
Studying economics brings little help.
First of all, the models are seemingly easy, when you compare the preference for two goods, or assume a market with a true polypol, but get incomprehensibly complex, the moment you start looking at multiple goods, typical supply chains of today and most importantly, that most markets aren’t polypols, many goods aren’t substituable etc.
But even assuming you have a great model understanding of things, you simply lack the information. That is also the reason, why no single actor can consistently beat the stock market, aside from shear luck (which tends to run out eventually). There will always be so much more to the picture, that you don’t know, than what you know.
To be fair if the goal is understanding why, then even things like goods not being substitutable are useful for understanding. The OP wanted to know why, not know how to predict them accurately. The original suggestion to learn economics would teach them that.
Somewhat related, you can still get SSDs pretty cheap due to the oversupply of NAND flash (supply greater than demand = prices go down). That’ll clear up in the next few months though, with manufacturers like Samsung reducing production and increasing prices of NAND flash.
It’s a combination of people taking advantage of things, peoples’ hands being forced, and trying to make sure only certain people get the stuff.
I remember there was enormous backlash because people keep raising the prices on medical supplies such as insulin and inhalers. One day I discovered there was actually one place a friend of mine could get medical supplies for a reasonable price, but alas, people who didn’t even have the medical condition would buy it all in bulk… all before selling it at a separate location for the normal insane price.
It’s clear that you cannot totally follow both prosperity and freedom.
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Some people know people will buy what they have to offer, so they ask for more in return. I will say what I object to is people killing the competition, for example the same YouTube we currently know was responsible for the Tiktok gossip.
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If money is a priority, you take your mind off a lot of subtleties. Going back to the topic of medicine, the mafia tried selling insulin cheap in some places, at least before they ran out and started selling unassuming random assortments in it. This trend, which you can actually blame Reddit for, didn’t last.
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The biggest thing to remember is this thing we call currency is regulated and is dependent on uniqueness. It must be balanced with things like population and conflict. And note a part of this implies how non-automatic its existence is. If I began a civilization somewhere, the closest I’d do is go commodity, possibly with a services system, which I can already hear people bringing up my currently-faulty subreddit in response to (needs a few systemic fixes, I know).
No matter what country anyone mentions here, there’s a 100% chance it has a system that doesn’t work. If it’s not equal opportunity, it’s an unequal opportunity, and if it’s not flexible/independent, what you describe is inevitable, and things snap in two or get dragged down.
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Well, a lot of labor goes in to making things like electronics. The supply chain and regulatory compliance are very complicated, and the margins are very thin (highest I’ve seen is 15%, maybe exceeded by some exceptions like Apple but usually it is less).
So small changes to the hard costs, distribution, tax status, labor costs, shipping costs, duties, or regulatory burdens would affect the end price. For electronics at least, it’s a pretty complex equation.
Anyway, I’ve got good news! You’ve got it relatively easy. Here in Vietnam, land prices are much higher. Want a reasonably modern house 90 minute drive from HCMC? If you are university educated, and so is your partner, and you have no kids, and no luxury expenses… I worked out you could afford it, if you save for about 40 years and prices don’t go up. No yard or anything – just a 100 square meter plot fileld to the brim with a concrete house.
Food is cheap here, at least! You would be shocked at land prices in Asia though.
More and more cities are becoming like this, governments don’t or can’t plan for mega cities
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Curious if OP keeps a budget, log of his spending.
Your title may be the one time this year we could’ve seen proper application of the phrase “begging the question”.
