A $20 hair trimmer worth $1000

Photo credit to Alexander Andrews

Goals of this article

This article is heavily inspired by Mr. Money Mustache.

The point of this article is to show that the equations we derived here have applications in large areas of personal decision making.

An application of net present value analysis

A typical men's haircut is about $20 with tip and lasts 2 to 8 weeks depending on the job requirements and vanity of the individual. This means that haircuts are an annual expense of $130 to $520. A hair trimmer costs $20. That means an investment in a hair trimmer has a rate of return between 650% and 2600% per year. And it will last about 10 years with no maintenance aside from a little lubrication.

In NPV terms, 10 years of haircuts cost $1,000 to $4,000 dollars or $20 for the do it yourself tool. We do not include the value of time in these calculations because no time is saved by paying someone to cut hair. The payer still has to be present and stationary for the haircut and they have to invest extra time in transporting themselves to the barbershop. They save time and money by cutting their own hair.

$$ \begin{align} \text{NPV}_\text{\$130 per year, 10 years} &= \frac{\text{\$}130}{0.06}\left(1-e^{-0.06\times 10}\right) = \text{\$} 977 \\ \text{NPV}_\text{\$520 per year, 10 years} &= \frac{\text{\$}520}{0.06}\left(1-e^{-0.06\times 10}\right) = \text{\$}3900 \end{align} $$

Developing wealthy patterns of thinking, or thought patterns that lead to behaviors that cause money to accumulate, requires a person to think in these terms. A person can wander into debt and financial ruin without paying attention but accumulating wealth requires vigilance. It requires an aversion to financial waste and a continual reevaluation of the true costs of basic daily decisions in the context of a person's current income and income security.