What Does 'Paying for Itself' Mean: Examples and Explanations
The concept of something paying for itself may be a familiar notion in personal finance and business contexts. Whether it is a physical item or an intangible service, the idea is that the benefits derived exceed the initial cost. This principle is closely related to the broader concept of return on investment (ROI).
Practical Examples in Personal Finance
Let's delve into some concrete examples to illustrate how the principle of paying for itself can be applied in everyday situations. For instance, consider the case of a 65-inch smart screen television with a UHD multi-pixel sound bar. The initial purchase cost is 2,000 dollars, but the savings on cinema visits could offset this quickly.
Imagine if an individual would normally spend around 40 pounds per week on parking fees, popcorn, and drinks at the cinema. By purchasing the smart screen television, this person can watch high-definition films at home without incurring those expenses. Assuming an average of 52 weeks per year, the savings on cinema visits would amount to approximately 2,080 pounds. Therefore, in just slightly more than a year, the television would have already paid for itself.
Other Real-Life Scenarios
In a broader context, the concept of paying for itself can also apply to services or memberships. Take, for example, a seven-day transit pass for 25 pounds. If a traveler expects to spend ten to twelve pounds per day on bus and underground fares, this transit pass effectively pays for itself after just three days. Similarly, a 125-pound senior citizen membership at a local art museum pays for itself once the individual makes more than six visits, saving over 120 pounds in admission fees.
Buying Unsold Properties and Shares
An interesting application of the paying for itself principle is seen in the purchase of assets like properties and shares. Consider a scenario where an individual purchases a property without any down payment, rents it out to tenants who cover the mortgage, thereby effectively paying for the property itself.
Moreover, financial investments are another context where the principle can be applied. For example, after deciding to purchase shares in a company that lists on a stock exchange, the shares appreciate in value significantly. If the individual sells the shares at a profit before payment becomes due, the transaction can be said to have paid for itself. However, it’s important to note that this is a hypothetical scenario and the success or failure of such an investment depends on market conditions and other factors.
A Personal Case Study
To provide a more relatable example, imagine a retired fisherman who loves fishing but finds it expensive. He decides to invest in a high-quality fishing pole and tackle for 100 pounds. If he catches 30 pounds of fish, which would otherwise cost around 100 pounds at a store, he would have saved 50 pounds in the process. Thus, the fishing gear would have paid for itself since the value of the fish caught more than covers the initial investment.
The Importance of Return on Investment (ROI)
The concept of paying for itself is closely tied to the broader idea of return on investment (ROI). To derive true value from an investment, it's crucial to conduct a cost-benefit analysis to ensure that the returns significantly outweigh the initial cost. This can often lead to smarter financial decisions and more efficient use of resources.
Whether you're investing in physical assets like property or shares, or in services like transit passes or museum memberships, the principle of paying for itself can be a valuable guide in making informed decisions.