A Simple Way To Think About Saving and Spending

posted by Andrea | 09/15/2016
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saving and spending

Over the course of my life, I have talked myself out of buying SOOOOOOOO many different things, simply because I didn’t feel it was worth the monetary investment — especially once I mentally calculated how many hours I would have to work to make enough money to pay for that specific item.

I was sharing a few of these moments with friends a couple weeks ago and none of them had ever thought to consider how many hours they (or their spouse) would have to work to pay for an item — probably because most of them were salary workers.

Anyway, I figured this might be a fun and super simple tip to share here on the blog — especially with the holiday season coming up and lots of holiday spending!

If you’re looking for a fairly simple and straightforward way to quickly decide if the cost of something is worth it for you, follow these 2 steps.

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Step 1: Figure out your hourly income.

Obviously, if you have a job where you get paid by the hour, just use that as your “hourly income”.

If you get paid a weekly or monthly salary, just figure out what you make every year (use last year’s tax returns as a general guide) and divide that number by 2000 (50 working weeks x 40 hours per week). This number will be your hourly income.

If you personally don’t make an income, use whatever your household income was on last year’s tax returns and divide that amount by 2000.

For example, let’s say your household income is $40,000. If you divide that by 2000 hours of work each year, you would come up with an estimated hourly income of around $20 per hour.

We’ll use $20 per hour as our hourly income for the sake of this blog post — feel free to adjust my examples according to your own hourly income.

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Step 2: Consider your hourly income before making any purchase.

The next time you’re tempted to swing through the drive thru window and spend $25+ to feed your family, stop and ask yourself if it’s worth working for over an hour for that one meal.

The next time you REALLY want to splurge on that $200 pair of boots or fancy bag, stop and ask yourself if it’s worth 10 hours of work for one pair of boots or a bag.

The next time you pass the Apple store and think about spending $769 on the new iPhone, stop and ask yourself if it’s worth 38.4 hours of work.

The next time you’re tempted to drop $3500 on a vacation, stop and ask yourself if it’s worth 175 hours of work (or over a month of 40-hour work weeks).

Maybe you decide it IS worth that amount of work — and maybe you decide it’s NOT worth it — the point is that you’re actually THINKING about your spending before just handing over your credit card or your hard-earned cash. 

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I’m not trying to tell you what you should and should not spend your own money on — I just want you to stop and think (preferably 24 hours for larger purchase decisions) about if it’s worth the time and effort you (or your spouse) would need to spend at your job (away from other things you enjoy) just to buy this specific item.

See, told you it was simple!

For some, this might be too simple — but I promise you, it is pretty effective if you get in the habit of doing it on a very regular basis.

It’s amazing how much more expensive and less necessary things seem when you consider how much time you would need to spend working just to pay for it!

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27 comments

  1. Laura

    09/27/2016

    I do this every once in a while and then I start to do it for everything and I become neurotic! Even the grocery store, filling the car up with gas, every little thing and it makes me nuts. I think at some point in my life I must have thought that I would be broke and then think about the outfit I paid for, the night we went out to dinner, and if I would have just saved that instead, what if?…You would think that I grew up in the depression, but no I did not. I grew up at the height of the stock market while things were booming. It’s funny how I am a saver and don’t spend a whole lot whereas my sister spends everything they have. I often wonder how that is, since we grew up in the same house, same family, same values, etc. It just goes to show that everyone is different.

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    Andrea Reply:

    haha –that’s crazy! And yes, we can identify with siblings who are not nearly as “thrifty” as we are 🙂

    one thing that we sometimes do (well actually, mostly Dave) is say “that’s equal to 5 meals at Culver’s!” And since we love Culver’s so much, we can often use that to talk ourselves out of a purchase!

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  2. Olga

    09/16/2016

    For me if the thing/service I get is worth around $1 per use or less, I am fine with it. However, as for many people, I have my mental “checklist ” of items not worth even that amount.
    This includes lash/hair extensions, nail/decorative cosmetic products, fitness membership, “beauty” injections, etc…
    BUT I don’t feel guilty buying a $300+ facial moisturizing cream once a year, moreover, I consider it an investment for the future(even though I already see the difference when comparing my skin with other women my age (33), or even my younger sister). But we all have different priorities.
    I agree with those of your readers who mentioned the difference between earned money /hour vs.actual spending budget, it helps to be aware of this at ALL times.

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    Andrea Reply:

    I like this concept Olga! Thanks for sharing!

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  3. Rachael

    09/15/2016

    Thanks for your post. I admire how sensible you are. I’m not very disciplined with money and would love to change. I’m good at tracking what we spend and allocating for bills. I’m just an emotional spender (and eater). If I feel sorry for myself I try to relieve the pain by buying something nice. Trying to calculate hours worked or anything like that doesn’t help much when I just want something in the moment. I then shuffle around money to try and cover what I bought… I hate to think how much money I’ve wasted in my lifetime!! I would love to be self controlled enough to stick to my family budget!

    [Reply]

    Andrea Reply:

    Hi Rachael, Thanks for your comment and your kind words.

    I’m sure you’ve already tried this — but if you’ve never tried an all-cash envelope system, that MIGHT work well for you. I personally have never used it because we pay for everything with credit cards, but we have a few friends who were emotional spenders and they found a lot of success using the envelope method. They only had so much cash in their envelopes, and when it was gone for the week (or the month) they didn’t spend anything else. It very quickly helped them curb a lot of unnecessary spending.

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  4. Eileen

    09/15/2016

    I do this frequently. I don’t *always* do it, but it’s something I *try* to do.

    I don’t even know what I make/hour these days, but I have a number that’s probably much lower than reality, but I figure with taxes and insurance and retirement savings, it’s probably close to net pay/hour. In any event, it’s the one I use to make these calcs.

    I think it’s a great sanity check.

    [Reply]

    Andrea Reply:

    Yeah, I don’t do it ALL the time either — but it’s so powerful to really think how much you’d need to work to pay for something you really don’t need!

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  5. Bonnie'sMama

    09/15/2016

    I also like to divide the price by the number of uses, which helps me decide if it’s really worth paying the price. Each time I use an item, the price per use goes down. I bought a triple stroller (used) for $250 when we had three toddlers and I was pregnant. The problem was that I ended up being too tired to drag all those littles anywhere, and I truly did not have time to take them on walks, even though I needed to exercise. So we used it probably fewer than 20 times, which means those were some expennnnnsive walks.

    Since two of the toddlers were moved to another home and I only have one toddler and a new baby now, I have a big, long triple stroller to declutter from my garage . . .

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    Eileen Reply:

    This is a great reminder.

    I’ve gotten into backpacking in the recent years. Of course, there are certain things you absolutely need to have any chance of success (backpack, light/small tent, small sleeping pad). I acquired these items over several years (on sale, etc).

    Now that I’m doing the backpacking, there is ALWAYS smaller, lighter, cooler things to buy. I’ve stopped myself so many times because of this very reason. If I only go twice a year for a few nights, I don’t “need” anything else.

    And now I’m trying to apply that beyond just hobbies.

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    Andrea Reply:

    Oh the strollers! I have gone through SOOOOOOOOOO many strollers over the years 🙂
    Thankfully, I have always purchased them used and then was able to sell them (usually for more than I paid) when they didn’t work for us. Time to sell your triple stroller 🙂

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  6. Chris

    09/15/2016

    Some other ways of looking at it. If your income is $20 an hour, that is more like $15 after taxes and deductions, which would cause you to work even more hours.

    My husband invests in stock where he works. Before we were married, the company stock would split and go back up to what it was before, thus doubling the money. It did this several times. So he was very, very frugal and would ask himself before buying something, about if it was worth it to give up money that would double itself.

    To take it even further, I have been reading a lot of personal finance blogs lately and some of them claim your money can be worth up to 20x as much over your lifetime after compounding interest, so that is the way they talk themselves out of buying something.

    Quite interesting ways to think of $! 🙂

    [Reply]

    Andrea Reply:

    yes… I was trying to keep it ultra-simple for the sake of this post, but I agree about the lower hourly rate after taxes!
    Also, thanks for sharing the bit about investments — that’s something most people probably never consider!

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  7. Olivia

    09/15/2016

    Yes!!! I had this realization hit me in college (I was working full-time, in school full-time, and paying all my own bills) and it felt like I had been hit by a bus. I also realized one day that the purse I was about to purchase cost more than my average monthly electric bill…needless to say, I didn’t buy the purse! Those two thoughts have kept me pretty grounded over the years!

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    Andrea Reply:

    haha — glad you didn’t buy the purse 🙂

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  8. Mara

    09/15/2016

    Simple and powerful!! We use this A LOT when trying to decide if we want to “hire a pro” or DIY on a lot of home projects 🙂

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    Andrea Reply:

    oh yeah, this is great. We do this too!

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  9. Cindy

    09/15/2016

    Andrea, great tip! I’m contemplating on making a $200 purchase & I feel it is worth the hours because I’ll use it for many more hours than it cost to work for it. So using your example of $20 an hour, it’ll cost 10 working hours, but I’ll use the chair more than 10 hrs in the first week, so will come out ahead.

    [Reply]

    Andrea Reply:

    Yes, sometimes it most definitley IS worth the investment — I’m not saying we should buy anything expensive, but rather to simply stop and evaluate the true cost before you make the purchase. It sounds like you have already done that — and that this charge will be a great purchase for you!

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  10. Shelly Cluff

    09/15/2016

    I love this tip. My husband is especially frugal and he takes this one step further. Because not all of your income is available for freely spending, he says that if let’s say 75% of your income is committed every month to bills and necessities, that means you only make a measly $5 an hour of “spending money” (to use your $20/hr pay rate example)- then it’s even harder to talk yourself into something!

    When I was used to work in sales and make big commissions, it was easy to think I could quickly make the money for something I was buying, but his lesson changed my tune

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    Ann Brubaker Reply:

    Good point! I hadn’t thought of it that way.

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    Andrea Reply:

    Wow that’s great!

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    Julie S-H Reply:

    That’s what I was thinking too! The spending money part of the budget might only be 20% of your income! I try to think about what percentage of our net spending money is a certain purchase, but often I forget to think that way! We must stay in reality when making financial choices, big and small ones. I love your simple tips, Andrea! Thanks so much!

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    Chris Reply:

    Oh, that’s a great way of looking at it too.

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  11. Marcia

    09/15/2016

    I hate to pay sales tax on top of the purchase. A lot of times this helps me to skip it.

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    Andrea Reply:

    I never thought of it this way — but you’re right, it’s just another added expense!

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  12. Julia

    09/15/2016

    Phew… Glad I am not the only one who thinks this way!! This thought process has stopped me from splurging many times. The reality of working so many hours to pay for the item makes it not worth it! Thanks for sharing 🙂

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