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Rethinking Price-Points

Setting Your Own Price Before Someone Sets An External Price-Point For You

I was thinking about this concept when I came across an interesting article on how our-price points are manipulated by marketers. Prices are displayed to us in an exact order which makes us rethink value and therefore, what we’re willing to pay. I thought this would be a great opportunity to write a post on rethinking price-points independent of how they are externally set.

External vs Internal Price Points

Looking for “deals” is a very tricky business, marketers know we do this and therefore they flash certain prices at us which resets our internal gauge for value:price.

When you’re dining at a restaurant, higher prices may be listed first, so that any subsequent, lower prices appear to be great deals. This is also done in grocery stores, where a very expensive item is placed near a very cheap item. Generally, neither of these are high-profit items for the store, the sweet spot is the many middle-range products, which suddenly appear to be “good deals”.

Our minds tend to believe that “you get what you pay for”, which of course is true if all you’re looking at is the price, but completely wrong when you’ve spent the time researching the value an item brings specifically to you.

When looking for an apartment to rent, we generally have a vague idea of what the going rate is. So, we look for something within that range, anything far below it is often too good to be true.

So, external price points are set for us and therefore, easily manipulated. Internal price points are the ones we come up with. I almost never see this done, so let’s talk about the latter.

Resetting Your Price:Value Ratio

This isn’t always easy to do and generally, it requires much more research and time. I think doctors have far less time and much more money, which is perhaps why we choose to pay more for certain items, somewhat ensuring that we are getting an item which won’t break down on us unexpectedly.

We can reset our price:value by first deciding what we’re willing to pay and then seeing what features we can cut out of a certain item/service.

Too often, we just assume something is impossible, so we don’t even consider an option as feasible, we shut down the chance of locking in savings. We might think that there is no way to find a place to live for less than $500k, there is no safe car to be had for $3k, no way to live on less than $3k/month, and no way to retire on <$1 million.

How To Reset Your Mind

I think it helps to have a more global view of our lives. For example, there are people living in this world on less than $500/month, probably not very comfortably, but they are existing. Then, there are families who are living a comfortable and happy life on $1,500/month. It’s also important to mention those who are living on around $750,000/month, which covers their multiple properties, personal services and travel/vacation expenses.

Why does the average doctor live on around $10k/month? Is it truly intentional or was this price-point set for us. Maybe we’re following someone else’s price:value ratio.

It’s helpful to be the kind of person who thinks outside of the box. When you need some fancy cabinetry for your kitchen, you can either hire a cabinet maker and pay the $45k or you can go to a rebuild center and have a handyman beautifully resurface them for you for $8k.

If you think that you must have a car, and that it must be something relatively new, in order for it to be reliable, and that you must have access to it 24/7, then you may be limiting your options and possibly forcing yourself into a particular price-point.

Instead, if you know that you only need a car for longer drives and that you can generally get to/from work by other means, then you might open up the possibility of either owning a beater or even better, using services such as Turo or Car2go or even a rental company’s fleet to provide you with transportation.

A cop, who was a patient of mine in Portland, bought a small houseboat with his wife for $120k about 5 years ago and pays about $500/month for HOA dues. He is able to live exactly where he wants, in a wonderful part of town, for about 5x less than what others are paying.

A freelance writer and his wife, a contract attorney, are living in a gorgeous high-rise in the heart of downtown Portland with their toddler, which they bought for $500k. It’s a luxurious condo with high ceiling and amazing views. An equivalent home with similar amenities would have cost them closer to $1 million.

Inflation Works The Same Way

If you aren’t careful about controlling your expenditure, it’s easy to think that your neighborhood prices are legit and simply the side effect of inflation. 

I have witnessed this with dental care. I remember how cheap dental care used to be and how expensive it is now, must be inflation right? Well, it’s not necessarily inflation or price-fixing, probably a combination of higher overhead and what consumers are willing to pay.

I then traveled to another part of the US to visit a friend, and the same exact dental procedure would have cost me 50% less, done by a reputable dentist. In the same month, a friend of mine traveled across the Mexico border to have her and her kids’ dental work completed and she paid even less than I could imagine.

Have you noticed that just a few years ago there were automobiles which could be bought for $8k brand new? We didn’t have any mass inflation since then and the only thing that happened was a temporary surge in oil prices. However, automobile manufacturers seem to have used that to offer vehicles at about a 50% inflated price.

Homes in Portland are selling for around $600k and well into the $800k range in some more desirable neighborhoods. However, a beat up, decrepit home can sit on the market for $250k without a single offer. Everyone wants a turnkey home, they assume that fixing the $250k home would cost far too much. I was able to have my realtor confirm that it wouldn’t cost more than $120k to get a particular $250k home into the equivalent shape of a $600k home.

Don’t Ask About The Offered Price, Set Your Own Price First

It doesn’t matter whether we are talking about internet service, a laptop, a home, landscaping, or dental work. All these services and goods are negotiable and you should first name the price you are willing to pay and then work backward to find what falls in that sweet spot of meeting your needs and value. 

If you can say that you are willing to pay $300k for a home near the beach, then you can figure out what you need to do to make that work. Not possible? My good friend bought a beach shack in San Diego, which needed very little work, for $330k and is renting it out for an amazing sum every month.

Can you pay zero taxes? Yes, there are books written on this topic, there are couples generating high incomes and paying zero in income taxes, legally. It’s possible because they didn’t start out by asking “How can I pay less taxes?” but instead asked, “How can I pay zero taxes and still enjoy the same lifestyle”.

Can I retire on less than $1 million? Yes, of course, not only does the majority of the US population retire on <$1 million but so do quite a few professional couples. The path has already been paved by others, the question is whether you are willing to think outside of the box to do so.

Can I pay $15/month for my cell phone bill? Yes, I’m doing it, I pay around $10 a month right now and have paid a maximum of $18/month. So it’s doable and you can enjoy incredible savings when it comes to technology – again, get creative.

Can you have $0 transportation expenses? Yes, most definitely. You can own a car, rent it out a few days a month on Turo and use that money to cover the depreciation of the car, the insurance, and even your gasoline expenses.

Can you have $0 in housing expenses? Fuck yes. My friend lives in San Diego in a very nice home with solar panels, a pool and has 2 of her bedrooms rented out. She loves having roommates and these are not just renters but are now her friends. She covers her mortgage and pretty much all other home expenses.

Another acquaintance started renting out her 2 spare bedrooms on Airbnb about a year ago. Not only is she covering her mortgage but she is making around $3k/month because she lives in a very desirable area in Portland.

4 replies on “Rethinking Price-Points”

My biggest worry is health insurance. Everything else is easy to negotiate and plan for and control.

I figure that in a few years many more optional insurance plans will be mandatory. With the sharing economy and new technology that’s developing, people will find ways around carrying such liability coverage. The big companies with their incredible lobbying power should be able to push back effectively and mandate insurance coverage, citing reasons such as “others” having to take on the burden of the uninsured. I know that my ability of obtaining cheap health insurance disappeared once health insurance became obligatory, effectively ensuring that I carry the health insurance burden for the sicker and uninsured.
This is one of the main reasons I push for doctors to at least give themselves a chance to be financially independent, allowing themselves many other slick options such as falling inside the poverty line due to low earned wage-income.

Yes, it’s pretty appealing to think one could have very high retirement account balances but live part of the year in low cost countries, needing very little draw down and therefore qualifying for healthcare subsidies. We’ve paid millions in income tax so maybe we can now reap some of the benefits.

Well said! And with a simple side business, we can ope an individual 401k + profit sharing, to defer income taxes on any possible earnings, regardless of the source. Later, if we end up not needing that income and are forced into RMD’s (required minimum distributions), we can donate that money to charity and avoid that deferred taxing all together.

I realize the path to financial independence requires a bit of planning and living outside of the traditional physician lifestyle. But I’ll take 5-7 years of non-traditional living over a lifetime of having everyone’s hands in my pocket.

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