Ever have someone ask you so how much did THAT cost you? But did anyone ever ask you how much time did it cost you? Probably not. But, in many ways our time is much more valuable than our money because once our time is spent we can never get it back.
One way to evaluate our purchases and limit spending is to consider the cost of our time. Instead of just looking at the cost of the item, calculate how many hours you will need to work in order to pay for the item.
If you get paid hourly then this is fairly simple. If you get a salary then it should be relatively simple to calculate how much you actually make per hour. Lets say Mark is salaried and makes $800 per week. If Mark takes his weekly salary and divides by 40, he gets his hourly rate of $20 per hour.
So what do I mean by considering the cost of your time. Let’s say Mark has been watching the ads on TV and the new iPad 3 looks so cool. Plus his buddy Tony has had an iPad 2 for a few months and is always rubbing it in to Mark what a dinosaur Mark’s PC is and how much more awesome the iPad is. Tony would be so jealous if Mark walked in with a new iPad 3. Looking at Apple’s web site the top of the line model is currently $829. (Gotta get the best model after all, we really want to make Tony drool a little.)
If Mark makes $20 perhour and the iPad costs $829 then Mark will have to work about 41 and a half hours to pay for it. (829 divided by 20). To be more accurate after taxes Mark probably makes closer to $15 an hour. At that rate Mark would have to work about 55 hours.
So now Mark needs to consider this. 55 hours is almost a week and a half. Does he want an iPad badly enough to work a week and a half for it? Maybe all of a sudden the iPad doesn’t seem like such a good idea. Or maybe he’d really like that iPad and a week and a half worth of work seems like a good bargain.
Neither answer is right or wrong. It is simply a value judgement. I’m looking at making a purchase. How much of my time is that purchase worth? You can use this technique any time you are making a purchase of any significance to add a little perspective. It will make you consider your purchase in just a slightly different light, and may give you one more tool to help you make wise purchases.