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What You Should Know About Value for Money & Personal Finances


The crucial importance of truly understanding the concept of ‘Value for Money‘ first dawned on me when I was appointed by a school in England to sort out their finances in 2003.

Despite being a well-funded state school their budget was everything but healthy with substantial arrears outstanding. They were hamstrung by limited funds and could not afford to maintain their premises or facilities, let alone employ quality staff.

Cartoon: Businessmen look on as old timer uses divining rodThis guy knows where to find the best value for money.

Image: Cartoonresource (Shutterstock)

The senior management and the local council backing the school continued to believe that they were working with a philosophy of ‘best value for money’. This phrase was used on a daily basis, everywhere, but I found it hard to see any evidence of anyone actually grasping the true concept of ‘value for money’.

It came across to me as just a fashionable expression reserved for moments of mutual agreement on financial subjects that no-one seemed fully to understand.

It took me a whole budget cycle to teach the management what ‘value for money’ really means, plus another year to implement the amended budget. The end result was a healthy, positive budget facilitating a comprehensive refurbishment of the school grounds, an upgrade of all the classrooms, the employment of better teachers, and many more things besides.

But enough of my background… Value for Money is not only good practice for businesses; it is also equally as useful in a domestic setting. Paying heed to a value for money strategy certainly helps manage personal finances and squeezes more out of the limited resources most people have available.

Examples of Value for Money

Value for Money is not getting the maximum amount of things from a limited budget but Getting What You Need

Say, as an example, you have £500 and think of spending it on clothes. Value for money doesn’t mean that you should get as many clothes as possible for £500.

Actually the very first question you need to ask yourself is: Do I actually need any more clothes?

If the answer is yes, then the next question is: What clothes do I really need?

You may come up with the following list: a shirt; five items of underwear; jogging bottoms; a winter coat

The next step is to write down the prices for these items. Here we are looking at prices for good quality items not just the cheapest bargains which will need replacement sooner than later.

So our list is now priced as follows:
1 x shirt – £85
5 x items of underwear – £50
1 x jogging bottoms – £75
1 x winter coat – £250

In total, £460. We even have a saving of £40 from the original budget of £500.

You get what you need and even keep some money for other uses because having a budget doesn’t mean that you have to spend it all. A budget means that you must not spend more than you have available to spend. If something is left over simply allocate it to some other use, for later.

In Summary: First budget your expenses, decide what you really need, estimate the prices, spend the money only on the essential things you need, and (important!) do not exhaust your budget for unnecessary things purely because you haven’t used all of the available money.

Value for Money is getting High Quality

Another common wrong and deceptive belief is that if money is limited you have to buy cheap.

Here are a few proverbs which may help you to think in the right direction:

Cheap things are not good, good things are not cheap.
Chines Proverb
What is cheap is the most costly.
Spanish Proverb
If you buy cheaply, you pay dearly.
English Proverb

Please take a few minutes to ponder over these three sayings. There is a good reason why different cultures have developed very similar aphorisms over the centuries.

Another saying is “I am too poor to buy cheap.”. Make a habit of this simple phrase when you make decisions what you buy.

Back to our previous example…

You have £500 and you think it is a good idea to spend the money on clothes. Now, without thinking in advance on how to spend it, you might go shopping with your money and start bargain hunting.

I am sure you will agree that it is likely that you will return home with some household items you probably found price-reduced in one shop or another; perhaps you added a few t-shirts to the clothes inventory or whatever else you saw cheap and you may even have bought a winter coat at the bargain price of £50.

Play a little with this line of thinking… you probably bought lots of items with your money but, actually, you only needed the winter coat.

The winter coat is very likely not the quality you would have preferred but you didn’t have £250 for the one you really wanted. You had already run short of money as you finally saw the cheap coat. In addition, after a few wears the quality of the coat may deteriorate meaning you’ll have to start looking for a new one next year.

What happened here is that you spent your budget of £500 for things you didn’t need, many of which, are unlikely to survive a longer period.

If you are entirely honest with yourself, in reality, you have purchased a winter coat for £500 (plus lots of things you didn’t need which have been thrown in for “free”), which you will only use for one year.

If you thought at the beginning that you were getting “value for money” then this was definitely wrong.

In Summary: Go out with a shopping list and only buy what you need. Look for quality not quantity!

Value for Money in some more Academic Terminology

‘Value for money’ (VFM) is a term used to assess whether or not an organisation has obtained the maximum benefit from the goods and services it both acquires and provides, within the resources available to it. Some elements may be subjective, difficult to measure, intangible and misunderstood. Judgement is therefore required when considering whether VFM has been satisfactorily achieved or not. It not only measures the cost of goods and services, but also takes account of the mix of quality, cost, resource use, fitness for purpose, timeliness, and convenience to judge whether or not, together, they constitute good value.
Source: University of Cambridge

Achieving VFM is also often described in terms of the Three E’s – economy, efficiency and effectiveness:

  • Economy – careful use of resources to save expense, time or effort.
  • Efficiency – same level of service for less cost, time or effort.
  • Effectiveness – getting a better return for the same amount of expense, time or effort.


Value for Money for Managing Personal Finances

Please don’t get scared off using the concept of ‘value for money’ purely because it is widely used in connection with businesses and organisations. This doesn’t mean that getting ‘value for money’ is not applicable for personal life.

In the end, every individual and every family are strictly speaking also “businesses”, albeit small businesses not large corporations.

Therefore, if Value for Money is a good practice for businesses it is certainly also good practice for the home. It will undoubtedly help you manage your finances better and get more out of the limited resources you probably have.

Therefore, try to understand what ‘value for money’ means and employ the concepts.

It’s as simple as this… Value for Money is about economy (thoughtful management of your money), efficiency (best use of your time, effort, and money) and effectiveness (optimised use of your money).

Good luck! 🙂


Last Update: 7 May 2015

Categories:Personal Wealth



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