How To Revolutionize Your Spending Habits

by Millionaire Mommy Next Door on December 18, 2008

in Calculators,How To Guide,Inspiration,Resources

For some, buying with credit is akin to paying with funny-money. You want something, you pull out a plastic card and shazam, you own it. At least that’s what you think… But money, whether earned yesterday or tomorrow, is something we trade our life energy for.

Do you want financial freedom? Then it’s necessary to keep your credit cards (and cash) out of merchant’s hands. Today, I’m sharing a trick that can completely revolutionize your spending habits by changing the way you see the cost of the goodies that merchants want to sell to you.

Here’s the trick: Translate the number of dollars you see printed on a price tag into the number of hours the purchase will require you to work for it. By doing so, you’ll make well-informed decisions regarding what you’re willing to pay for with your irreplaceable life energy.

Do you know how much your net pay is per hour — after all work-related expenses are subtracted? Here’s a cool tool you can use to determine your bottom line: Time Value Calculator.

One of my coaching clients (Sue) earns $60,000 annually. She’s thinking about buying a new car. She’s considering taking on a $400 monthly car payment. Should she do it?

It’s not my place to answer that question for her. But I CAN help her come to her own conclusion by turning dollars into the time she’ll need to work to pay for it. Using the Time Value Calculator, we find that after taxes, commuting, daycare and other work-related expenses are subtracted, Sue’s net pay per hour is $16.07.

Now we take the $400 monthly car payment she’s considering and divide it by $16.07 to find that buying a new car would cost her almost 25 hours of time working EACH MONTH for the next five years.

Translating dollars into time made it easy for Sue to come to her own conclusion. She decided to have her current car professionally cleaned and detailed instead.

I suggested that she write her true hourly wage on a piece of paper and affix it to her credit card and checkbook. Before making any purchase, she would be reminded to divide the sales price by her true hourly wage. Is the item or service worth the hours of work required to pay for it? If so, buy it. If not, walk away.

Let’s look at some other time-price tag examples:

Apple iPod: $250 divided by $16.07 = 16 working hours.
Monthly supply of cigarettes and chewing gum: $200 divided by $16.07 = 12 working hours every month… until you quit!
House payment (PITI and maintenance) = $1600 divided by $16.07 = 100 working hours every month for 30 years.

What’s YOUR number?

Do it – convert your dollars into time. Then spend your money AND your time in accordance with your own personal values and priorities.

{ 9 comments… read them below or add one }

Chung Nguyen December 18, 2008 at 6:44 pm

$14.26 at my current job. Apparently, I have about 50+ hours of leisure time a week. I have no idea where it’s spent (too much television?).

This is a very interesting way of looking at spending and value and, umm, yeah, I’m gonna need to reevaluate some purchases going forward.

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Julie December 18, 2008 at 7:39 pm

I love this example! Off to calculate…

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Debbie December 19, 2008 at 5:36 am

Excellent point that I have used for several years. Makes it so much easier to walk away from an item when you change how you value what you have to give up for what you would get out of the item.

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Laurie December 19, 2008 at 8:45 am

I learned this tip many years ago (from Your Money or Your Life?), and it definitely helped me increase my savings.

I like the flip side, too – you will tend to value and appreciate those items you DO purchase! Three years ago, I finally purchased an MP3 player (no – not an iPod, you pay too much for the name). Not cheap, but I get a great deal of satisfaction and enjoyment from it. Simply being AWARE of the true cost also raises and maintains my appreciation of the purchase – another way of enhancing value.

Thanks for the VERY useful information.

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ariane December 22, 2008 at 4:52 am

I totally agree with you. Applying this tips in would help me more to increase my savings!

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Heather January 8, 2009 at 7:16 am

This a powerful way of looking at a purchase! As a stay at home mom with a side business, my husband is our primary earner. When I think about how many hours he has to work for us to purchase something it really gives perspective! Would I rather have him working extra or home with us?? Also, what a commenter above stated, you value what you do have more! We have been on a financial journey for the last 3 years (since finding Dave Ramsey) and I can’t even begin to tell you how FREEING it is to live without consumer debt!!!!!! LOVE, LOVE, LOVE it!!! We also drive older, PAID for vehicles… wouldn’t want it any other way!!!!!!!!! Thank you for your insightful articles!!
Heather

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Lise January 20, 2009 at 3:46 pm

I had read about calculating your real hourly wage before, in Your Money or Your Life, but I appreciate the link to a calculator to do it. It’s one of those things I’d never gotten around to doing because it seemed like a tedious task.

But now it’s done! And my real hourly wage is $12.75. And then I immediately went and put a note on my credit card just like Sue did!

Thanks for sharing this tip from your coaching experience!

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Ed March 14, 2011 at 9:25 pm

Great idea!

I also add in the 9% sales tax for the item I’m buying.

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Claire March 14, 2012 at 5:01 pm

This is a great idea, which I plan to put to use. Unfortunately, the link to the calculator has since been broken, moved, or discontinued. Could you please post a new link? or guidelines on how to do it yourself? I plan to make my own calculation, but I’d like to see what aspects others are considering, and how they factor those together.

Thank you.

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