Personal Finance 

How Many Hours Does That Cost?

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Time is a CommodityAsk my friend Ramit Sethi about the latte factor if you want to hear a good reason why finances shouldn’t be about pinching pennies. Ramit’s argument, about coffee anyway, is that you’re spending time on visible “easy” savings rather than less visible but larger dollar amount savings. You can save more in one call to a cable company than skipping your morning coffee, even though skipping morning coffee takes more work. You don’t have to spend a lot of time to get a lot of savings, you sometimes just think you do.

I just noticed that a lot of you are here because you clicked on a link in an email, I’d love it if you told me who sent it so I can thank them! Also, if you have any suggestions or comments on the calculator, I’d love to hear them in the comments below. Thanks!

I agree with that sentiment but I argue that finances, and life in general, is ultimately about trade-offs. You can get that morning coffee but it’ll cost you something else. In my mind, I always think about how many hours it’ll cost me. If I make $40,000 a year, how much does that coffee cost me in terms of time? A $3 cup of coffee costs you about 15 minutes of take home pay. Is a cup of coffee worth fifteen minutes? Or would you rather spend it on something else? By knowing the cost of something in time, you can make more educated trade offs.

I wasn’t aware of any calculators out there so I came up with a quick and dirty one that I believe is accurate (let me know if I’m wrong!).

How Many Hours Does That Cost? Calculator

This calculator will take your annual salary, deduct your personal exemption and standard deduction (single filers), figure out your tax liability using the 2012 tax brackets and then deduct FICA (Social Security & Medicaid) to reach your take home pay. Then it’ll divide that by 2,000 hours (52 weeks, 40 hours with 2 weeks vacation) to find your hourly rate – then use that to find out how many hours it’ll take for you to pay for that thingy you want. 🙂

What is your annual salary?
How much is that item?
That will cost you… hours
Your hourly takehome rate was:
Your tax bracket: %
Your effective Federal tax rate: %

I threw some other interesting stats at the end for kicks. The take home rate hourly and takes into account taxes and FICA. Your tax bracket is simply your marginal tax bracket based on your salary minus the personal exemption and deduction. Finally your tax rate takes your tax liability and divides it by your salary, it will always be lower than your actual tax bracket.

Let me know what you think!

(Photo: frield)

{ 24 comments, please add your thoughts now! }

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24 Responses to “How Many Hours Does That Cost?”

  1. Squeezer says:

    This is how I justify buying something as well. I’ve always calculated how many hours I would have to work to pay for it. Or for larger items, how many days would I have to work for it.

  2. Don Boudreaux, economist at George Mason University and one of the main bloggers on Cafe Hayek, has done some interesting historical work using this concept ( see and

  3. Wilma says:

    I limit myself to $5 a day or less in the company cafeteria. I bring my own snacks, coffee and water. Whether you’re factoring it as man hours or interest in the bank you lost or however, it’s money spent and you can’t get it back so you best get the most for it that you can.

  4. Kelley Long says:

    There is a similar concept presented in the book “Your Money or Your Life” by Vicki Robin and Joe Dominguez, although they take it a step further in figuring out the hourly rate by adding in your commute, the time you spend figuring out what to wear, and even time spent “de-compressing” that you wouldn’t have to spend if you didn’t have the job. Such a calculation may make your daily cup of coffee worth closer to an hour of work!

    • Jim says:

      That’s really interesting because while I suspect most people are aware of commute, getting dressed, etc – decompressing is probably not something they factor into “work.”

  5. Thevail says:

    Hmm.. cool tool..maybe, allow for how many hours per week/month that you work..some of us are only part time..

  6. ImpulseSave says:

    Interesting calculator. This makes you really think about every purchase in terms of your relative income. I liked putting in other salaries and seeing how the tax brackets change. Great tool!

  7. What a neat tool, simple yet effective. When’s the mobile version coming out? 😀

    We created a tool as well to help people realize what the interest on their credit card debt is costing them. (

    I think simple calculators like these that put reality into perspective effectively tap into the psychology behind money and can be really profound and useful.

  8. Jeremy says:

    I’ve thought this way for a long time, probably was rooted from when I also read “Your money or your life” several years ago.

    As an Engineer I’m always analyzing the efficiency of everything I do, Including how I spend or make money. When I buy a coffee or an iPad, I always think, how many unpaid (extra) vacation days is this costing me, (since I have the fortunate option of taking unpaid vacation days), and since days off from work are so valuable to me, it makes me think long and hard about buying an iPad for the cost of a whole week of vacation from work.

    I also like to think about it this way, would you rather have a 2% pay raise or an extra week of vacation? 98% of the people I know would rather have an extra week of vacation over a meager 2% pay raise.

    So, same thing, i just like to think of it in “hours not working” instead of the inverse.

    • Ben says:

      I also think of it as hours not working because I’d rather not be working than working.

      Also, my time off to me is worth a lot more than the hourly rate I can get for working… so if something costs me something in terms of the time off I could’ve had instead, it’s far more valuable to me than if I think of it in terms of the amount of work I have to do to afford it.

      I think this approach really helps me think about what’s important in life. It helps evaluate much more effectively “does this item/expense improve my quality of life, or does it cost me some of my quality of life.” If it costs me any of my quality of life, it’s a negative purchase and I don’t buy it.

  9. Nath says:

    You should take fixed costs into account first. The available money for “extras” should come after taxes *and* mortgage, electricity and everything else you can’t avoid.
    The result is even more interesting.

  10. Billy Bob says:

    Dan Ariely has made an app that does something like this, although instead of looking at the number of hours it takes to pay for something he compares it to what alternatives you could buy, so if you like coffee and you want to book a book you see how many coffees you would have to give up to get the book, similar but equally interesting concept. You can see his app here, its the first one Oranges2Apples

    • Jim says:

      That’s a good one (and i’m a big fan of Ariely). I think make choices where you choose this or that is better than choosing this vs. nothing.

  11. Eric Melski says:

    I think there’s a bug in your calculation:

    The code subtracts the standard deduction and the personal exemption from the salary value in order to determine the tax bracket, which is correct. However, the code then computes the take home pay based on that adjusted salary value, rather than the original, which is incorrect.

    The effect is not noticeable when you enter a very large salary, but if you try something like $16,000, you will see the effect quite clearly. As is, your computation suggests that the take home pay would be about $2.20 per hour, when in reality it is about $6.60 per hour.

  12. Lou Beaird says:

    Vince Chacon emailed this link to me!What a great tool! I will be passing this along to my clients!

  13. Ouida Hammer says:

    Michael Cox with Sente Mortgage in Plano TX sent this link to me.

  14. Laura says:

    Dan Monson from Sente Mortgage in Houston TX sent it to me. It is a pretty incredible tool!!! I will be using it a lot in the near future.

  15. Carlos says:

    Josh Brown with Sente Mortgage in Austin, Texas sent this to me. Pretty cool tool… I think I just need to make more money. 🙂

  16. Jan says:

    I used this idea with my teens years ago.
    1) Should mom be asked to work xxx hours so child could a) attend concert b) go on class trip c) buy those slamming silver shoes to wear one time.
    2) How long would my teen need to work to buy
    a) burger with fries etc.

    Now you need an app so the teen can talk with parents.

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