Do You Think About the Break-Even Point When You’re Spending Money?

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There is a lot of focus around the web about saving money. John writes about it, I write about it, and so do numerous other people. Saving money is the new thing!

Well, it’s a tried and true financial practice, but it’s making waves again as people are looking for more ways to save money. It makes sense, right? Saving money should be easier than making it, so why not focus on that part of the equation. I get it too, I used to just focus on saving money and not making more of it.

I just talked about the idea of buying new windows for your new home. We have been working hard to reduce the energy usage our home consumes and new windows sounded like a good idea. Our current windows are 28 years old, but haven’t been taken care of all that well. Since it’s incredibly easy to get an in-home consultation with a window company, I decided to do it. I admit I was sucked in by the presentation, but in the end, math won it for me!  Here’s what I mean.

Breaking Even


There is a point in basic mathematics where two lines converge. It’s called the break-even point. The two lines are typically based on business, like revenue and expenses. When your revenue equals your expenses, you are breaking even. It means you make nothing.

In personal finance, this break-even point can be used for other things. I’ve slowly learned to incorporate it into my big purchase decisions and the windows were fair game.

As I showed, the break-even point is simply calculated where your costs meet your revenue. I use this when I want to compare savings versus spending.

Let me explain.

Let’s say you want to buy a cell phone and switch to a cheap cell phone plan. Most people know unlocked, no-contract phones are more expensive. They aren’t subsidized by the carriers. This is why so many people aren’t on no-contract plans. The outright cost of a phone is unappealing. Considering the break even point just might make you change your mind.

I was on Verizon for years. For two lines, we were paying $150 a month.  After research, I switched to Straight Talk. We took our overall bill down to $90. This was an instant savings of $60 per month! Unfortunately (or is it?), we decided to buy new phones and bring them to Straight Talk.

We got two Nexus phones costing $500 for both. Alright, here’s where the math comes into play. It’s nice to switch, but how long until I realize actual savings?

$500 upfront cost / $60 per month savings  = 8.3 months until we break even.

So, even with an upfront cost of the phones, we were still able to break-even after eight months. In the 9th month, we were pocketing $60 per month. Many forget they aren’t truly saving anything when they have to pay something upfront. It’s a common thinking process, but we have to realize how long it takes us to pay for said product/service.

Should We Run the Numbers?


I’ve spoken with many people about the break-even point and I’ve realized it’s not something many people factor into their decision-making process. They want to see how much they can save, but not think about how much it costs to save that money.

With the windows, we would have had to pay nearly $10,000 to have them installed. By the time it was all said and done, it would have taken us over 38 years to break even on those windows. With a point so far out, it doesn’t make financial sense to purchase new windows. The break-even point is valuable. It keeps your emotions in check and puts you back on the right financial path.

I would always suggest you run the numbers. If you are considering spending money to save money, then you can easily calculate the break-even point. It’s not a hard equation and can be done in your head if you’re good with numbers. I was able to calculate the break-even point while the window salesman was running with spiel.

I didn’t talk to him about it, but before he was done, I was done with the process. I knew it didn’t make sense. Yes, new windows would have looked nice, but the expense of putting them in alongside the low savings rate just didn’t make it a worthwhile investment.

Running the numbers isn’t just about seeing if you can fit the expense in your budget. You need to make sure the expense is even justified. Don’t let a flashy salesman tell you how to spend your money. Remember, you’re in control. Figuring out the break-even point is a worthwhile exercise I think everyone should make part of their decision-making process, at least on big decisions. It’s easy, but it tells you exactly what you need to know in order to make an informed decision. A little math can go a long way when trying to save money!


Do you think about the break-even point when contemplating purchases? How do you decide whether or not a purchase is worth making? What’s something you’d be tempted to upgrade on your house?

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Grayson is the owner of Debt Roundup and Empowered Shopper. He also co-owns Sprout Wealth and Eyes on the Dollar. After going to battle and winning against consumer debt, he decided it was time to learn how to use credit wisely and grow his wealth. He discusses all things personal finance and is not afraid of being controversial. He also is a freelance writer and blog manager.

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  • It’s so important to run the numbers to figure out the break even point. Many times, you are surprised by what you find. Just looking on the surface it looks absurd to pay $500 for a new phone when you can get one for just $200 as you’ve said. But when you run the numbers, you see it’s really the opposite.

    This is why I tell people all of the time to look at the total cost of things, not just the upfront cost. So many buy expensive cars because of the monthly payment. They should be looking at the overall cost and not the monthly payment.

  • We absolutely run the numbers! The right answer isn’t always the dirt cheapest option. Sometimes it makes much more sense in the long run to go with a more expensive, but more durable or energy efficient, option.

    I think this is where the frugal vs. cheap distinction comes into play as well. Like you said, best not to simply follow the crowd with purchasing (the crowd doesn’t run numbers!).

  • Yes, I do! It’s a great decision-making tool. Most of the time, we should look at the bigger picture when making financial decisions.

  • I always run the numbers but with the window example you’d also have to calculate how much heating and ac you’re using that is going straight out the leaky windows to know a better break even point.

    Using the break even methodology allows you to stop and analyze a purchase before making it and this stops impulse purchasing and buying just because.

    • Grayson Bell says:

      Well, I based it off general research of how much new windows really help you compared to drafty windows. Not sure how you would really know the numbers, as the money doesn’t actually flow out your windows. Even having said that, a savings of 50%, which is incredibly high, would still not justify the cost for me.

  • I am a sucker for a good spreadsheet and love to run the numbers. We used the break even point to do very similar things to your examples. We switched phone plans and considered how the cost of no contract phones would weigh into the plan savings. We are in the same boat with the windows. Why are they so dang expensive?

    • Grayson Bell says:

      I used the calculations for my phone plan as well. It was a no-brainer! I’m not sure why windows are so expensive. They don’t even last as long as wood windows. They typically only last twenty years!

  • Money Beagle says:

    Yep, and it’s especially important as the decisions get bigger. For example, when we refinanced back in 2011, I had it down to the exact month to where the reduction in interest rate would yield a ‘savings’ once the costs of the refinance were recaptured. Knowledge is power!

  • Salespeople are terribly tricky. Otherwise, why would people trade a paid off car to spend $25K on a new one to save $50 a month on gas?

    I also think people will rationalize just about anything to make it seem like a good idea, but you can’t argue with cold, hard math.

  • Mrs. Maroon says:

    Math wins out every single time. It certainly pays to be smart and pay attention to the whole picture when it comes to large purchases. Don’t be lazy and just assume you’re getting the best deal. Sit down with a piece of paper (or spreadsheet) and your brain to make sure you are making the best financial decision!

  • Yep, it’s always a consideration.

    We switched to Roku from Dish. There was a small penalty for the remaining months, plus we had to ship the boxes back, and the initial cost of the Roku boxes.

    Still, within two months, we’d made the money back. Now we bank the savings ($92 a month) which is another great way to take advantage of the break-even point.

  • David says:

    I always run the numbers to find the break even point. I replaced my 45 year old windows last summer. Because I did my own installation it cost me only $1700. I figured I would break even in the 5th winter. If oil prices stay low it might be the 6th or 7th winter. Benefits that can’t be measured in dollars include a warmer, less drafty house and less time listening to my noisy hot air furnace.
    Another example is I need a full size pickup for my business. It’s a fuel hog. I have a minivan that I use when I don’t need the pickup. When gas is over $3.10/gallon I save enough fuel to pay for registering and insuring a second vehicle. Even though today’s low fuel prices mean it cost money to keep 2 vehicles on the road I don’t plan to sell the van. It’s a small price to pay for dry tools.

    • Grayson Bell says:

      Nice work on replacing them yourself. I consider myself well versed, but I’m not sure I would have the confidence in installing my own windows. Our furnace is not loud as it’s in our basement, so I don’t worry about that.

  • I absolutely look at this for all large purchases. But since I have a background I refer to it as the payback period 🙂

    I always like to say that the path is all math.


  • I don’t always use break-even equations in my decision making, but I do on large purchases. Good reminder of how we should use this info to help us make good purchasing decisions.

  • It is amazing just how much understanding the break even point changes the perception of ‘value’ when making purchasing decisions.

    Paying larger upfront costs are not normally a popular option for most buyers, but break even analysis can show that this is indeed the lower cost option in many instances. It is definitely worthwhile calculating break even points (particularly when making larger purchases).

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