Ignore Percentage-Based Cost Savings


Discount by Ricardo Moreira from The Noun ProjectI was reading an article in The Guardian about a new "no frills" transatlantic airline. The author talked about the various costs, and whether the cost savings were worth it. So, how much cheaper is it really?

BA wanted a minimum of £709.31, while Virgin's cheapest was £689.31.
Norwegian offered us a flight at £579.20 without hold luggage or meals, or £649.20 with.
So while the new challenger is still cheaper, the difference becomes more marginal, narrowing to as little as 6%.
Can Norwegian really offer bargain transatlantic no-frills flights?

(Emphasis added)

This is an entirely incorrect way to think about finances. Let me explain by analogy.

Suppose you want to buy the DVD box set of Buffy The Vampire Slayer. There's a shop a 5 minute walk away which has it for £80. If you walk for half an hour to another store, you can buy it for £40. A massive 50% saving!
Which store do you buy it from?

Before you answer that, consider this question.

Suppose you want to buy a brand new Ultra-HD 3D TV. There's a shop a 5 minute walk away which has it for £4,000. If you walk for half an hour to another store, you can buy it for £3,960. A pathetic 1% saving.
Which store do you buy it from?

The more financially astute among you will realise that the percentage doesn't matter - the absolute price does. In both cases, your bank account is healthier to the tune of £40.

It is the same with the flights above. Sure, you may "only" be saving 6%, but that is an extra £40 to spend on designer cocktails in trendy Manhattan bars.

Remember - always look at the absolute price. Sure, weigh that £40 against the cost of your time walking to a different shop, or the risk of choosing a new airline, or the returns policy of the store - but don't be fooled into thinking percentages matter when it comes to what you spend.

Your bank balance doesn't care about what percentage you've saved - just the absolute cost you've paid.

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