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.

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