Have you ever tried looking at your spending in terms of time? Often, I do look at cost of things and ask myself the question “how many hours do I have to work to buy that?” It’s actually a very interesting exercise that does make me think twice about spending my money, because, after all, the main reason for me wanting to achieve financial independence is to give me more freedom to do what I want with my time.
Let’s say that my take home wage is $30/hr, here’s the time value of some random items.
When I look at these purchases in terms of giving up my freedom it makes me really assess what I have and what I need. The opportunity cost then becomes my freedom which is high price to pay.
When it comes to bigger, one off items, there are a couple of factors that cause their time value to increase, the first of which is the fact that I can only earn money while I’m at work; so I think it’s helpful to look at the time value of these items in working days/weeks. This means that if an item costs 24 hours its actual cost is closer to 3 days as opposed to 1.
The second factor that comes into consideration is my savings rate. This is because I can’t devote 100% of my income towards saving for a particular item – I still need to use some to survive. Assuming my savings rate is 50% then the time value for these items would be multiplied by 1/0.5 = 2. Let’s say I work 10 hours of work per day, 5 days per week here’s how much some large 1 off items will cost if I apply the formula:
At the end of the day it comes down to how much you time you are willing to sacrifice vs how much enjoyment you are going to get from buying it. For me, there is no hard and fast rule about how many hours enjoyment I need to get from something, it merely serves as a pause for consideration. Is the enjoyment that I’ll get from purchasing/owning this item or service worth x hours, days, weeks, years of work?
Engineer your freedom