People who spend money grapple with buying decisions. Should they lock in a price or gamble? Accountants call that fixed or variable costs. How about an example?
Let’s talk about golf, since the season is upon us. Do you buy the season pass or not? If you buy the pass, do you figure out how many times you have to golf in order to “get your money’s worth”? Let’s make it simple; the pass is $1000 and green fees are $100. If you buy the pass and you golf more than 10 times, you are ahead. If you golf 5 times then you paid $200 a time. That was not a good financial decision.
Some people are happy to lock in the cost now so there is certainty. We know how much golf will cost this summer. Others will not buy the pass and end up golfing 18 times and then lament the money they could have saved.
How should you approach the decision? If you have some control over how many times you golf, then you could do the estimate. If it is more than 10, buy the pass. This decision applies to any buying decision where you could choose either a fixed cost or a variable cost. Do the math and make the call.