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Convert Purchases from Dollars into Time

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PaycheckOne strategy that seems to work well for people looking to conquer bad spending habits is to convert purchases into hours of work. A $4 latte, the classic enemy of frugalists everywhere, doesn’t seem too expensive because it’s only four dollars. If you only earn minimum wage of $7.25 an hour, that’s nearly half an hour of work before you take taxes into consideration. Is a cup of coffee worth half an hour of your life?

This is why the strategy works and here’s how you can start using it.

When calculating how much you earn per hour, it’s not important to know the exact number. It’s good enough to be close enough, since it probably won’t matter if it costs you five hours or five hours and ten minutes. The easiest way is to find your last tax filing and do a straight calculating of your taxes divided by your income. You’ll find that, after deductions and credits, it isn’t anywhere near what you’d guess based on the IRS tax brackets. I did this a few years ago and while I was in the 25% marginal tax rate, my actual tax rates were far lower because of 401(k) contributions, FICA deductions (like Social Security), and other credits.

If you don’t want to dig through tax returns, here’s another way. Take your take home pay and divide by the number of hours it covers. If you’re paid every two weeks, take your after-tax salary and divide by 80. That’s your earning power per hour and you can use it to decide how badly you want something. The pay check should say how many hours you’ve worked that pay period.

Once you have that number, you can start converting all your spending into hours of work. Your rent or mortgage payment goes from a nebulous dollar amount into actual hours. $1,200 a month for rent and you earn $20 an hour? That’s 60 hours – a week and a half of work. Is that a lot? Is that a little? That depends entirely on you, but at least now you have something more concrete than numbers on a screen to compare it to.

Do you do this? Do you think it works to help save you some money and curb your spending?

(Photo: rafaelnc)

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15 Responses to “Convert Purchases from Dollars into Time”

  1. cdiver says:

    I have to work a 2 hours a week in order to pay for my commute to work.

    • Martha says:

      Good reason to talk to your boss about allowing you to telecommute for one day a week! Save yourself some money and hopefully be just as productive at home.

      • cdiver says:

        Unfortuneatley that is hard to do with my line of work.

        • Martha says:

          That is a problem with many people’s line of work. But maybe that same analysis will help others who can work at home to request the one day a week telecommute!

  2. Imani says:

    This system really does work.

    When my children were very young, I’d convert every non-essential potential purchase into the number of disposable diapers that money would buy.

    Way more often than not, it was enough to keep me from spending money on the “wants”.

    • Shirley says:

      Yes it sure does!

      When we were very young with two babies, I watched my husband impulsively drop a quarter into a slot machine in a gas station in Nevada. Thinking out loud, I said, “There goes a loaf of bread.” He never gambled again… perhaps that worked too well?

  3. I think it does work. At the least it helps you put the purchase into perspective.

    • jsbrendog says:

      perspective is something that helps out a lot when dealign with money and finances. Unfortunately, most people lack it.

  4. billsnider says:

    Even better is the time it takes to pay taxes.

    I forgot the date, but it is something like May to pay your federal taxes. This number is adjusted each year to reflcect taxes and other such things. It is slowly getting to midnight, December 31st.

    Bill Snider

  5. zapeta says:

    I use this all the time to evaluate my purchases. It really puts my spending in to perspective for me. Do I want to work an entire day to pay for something that I don’t usually need? The answer is almost always no. I pair this with a 24 hour waiting period on any non-essential purchase and that keeps my spending on track.

  6. I do not do this, but this is a good way to value your time. Is a good portion of your time worth the purchases you are buying?

  7. My favorite part about estimating time versus value is the way I feel that I “earned” what I bought. There is a sense of pride when I think that I worked 40 hours for that awesome gadget. Something that took me just fifteen minutes to earn is not that gratifying. That sometimes keeps me from buying baubles too. Cheap, but where’s the fun it it?

  8. Nicole says:

    I have done this and it still seems to leave me spending more than I want. Yet I can probably do it more. I guess I have not been calculating based on after tax rates.

  9. CMPM says:

    I do this at times but should do it much more often. A friend, who works for the same (horrid) boss as me, has a variation of the same concept. She thinks of how many hours she has to spend working with our creature boss and if it’s worth it or not. Usually it’s not. A “benefit” of having a bad boss I guess. LOL


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