As American consumers, we’ve all made our share of regretful purchases, mostly due to our inability to gauge the true value of the things we buy. Most of the time, the cost of our purchases doesn’t lead to the satisfaction we hoped for. We’ll drop $400 on a new camera only to let it go mostly unused (guilty), or we’ll spend hundreds of dollars over time on candy addictions that ultimately make us fat and poor (also guilty).

To help us make more informed decisions and combat patterns of unhealthy spending, consider the Gartner Cost-Value Matrix.

The Cost-Value Matrix

While it was first introduced as a method for estimating business and IT expenses, the Gartner Cost-Value Matrix can easily be applied to our personal household spending patterns.

The Cost-Value Matrix covers four quadrants:

  1. Low Cost, Low Value
  2. Low Cost, High Value (the sweet spot)
  3. High Cost, Low Value (the danger zone)
  4. High Cost, High Value

A square with four quadrants (top-left to bottom right): High Cost / Low Value, High Cost / High Value, Low Cost / Low Value, Low Cost / High Value

Cost doesn’t have to apply only to the dollar amount of the purchase; it could also refer to the opportunity cost, time commitment, or inconvenience associated with the purchase (e.g. the hassles involved in buying a house).

Value could represent the long-term satisfaction, utility, and reliability of the product we’re buying. It’s subjective, but as an example, buying a new guitar might bring a musician years of enjoyment, opportunity for personal growth, and possibly even a source of income. An iPad, on the other hand, might be a reliable entertainment source at first, only to go unused or replaced when a new model is released.

With this in mind, let’s apply a few common expenses to the matrix as an example:

Another example of the four quadrant Cost-Value Matrix, but with examples such as TVs (High Cost, Low Value), real estate (High Cost, High Value), and a new guitar (Low Cost, High Value)

As a rule of thumb, you’ll want to avoid the High Cost, Low Value purchases where possible, and aim to make purchases that fall within the Low Cost, High Value quadrant.

Your graph may look entirely different from mine above, but this is a useful exercise. By thinking of our purchases in terms of the value we’ll receive from them, we’ll be able to align the cost of an item with its true value over time, leading to a significant decrease in regretful purchases.

So next time you’re considering a purchase, ask yourself these key questions:

  • Where would this fall on the Cost-Value Matrix?
  • Can I expect to find lasting satisfaction in this purchase?
  • Does the cost justify the value I’ll receive?
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