The Time (Value) of Your Life
 

The most obvious way to save money is not to spend it. This is often where most people experience great difficulty. It’s hard to resist spending in a world that relentlessly encourages consumption and encourages people to think of wants as needs. In addition to the techniques above, here’s a quick value judgment you can make to help you decide if what you’re considering spending your hard earned money on is really worth it to you.

For anyone who still works for a living, you’re not really spending money when you buy. You’re deciding if you’re willing to give a part of your life to obtain whatever it is you’re considering. You trade your time for income. Sure you might earn a lot of money, even on an hourly basis, but you’re still trading your time for money. The more money you spend on things that don’t increase your net worth, the longer it will take you to become wealthy.

To help you get there as soon as possible figure out your net hourly pay, and then determine how many hours you’d have to work at your job in order to pay for a purchase. Say every two weeks you bring home $1,000, and your average work week is 40 hours. That means you net $1,000 for every 80 hours of work which is $12.50 an hour, or about $0.20 a minute.

A fancy cup of coffee at Starbucks costs $3.80. Are you willing to work 19 minutes every day for a cup of coffee? Because at $0.20 a minute, that’s how long it would take you to earn $3.80.

How about happy hour after work to unwind? Let’s say a couple of beers, appetizers, a burger, and tips run you $20. That’s another hour and a half of work.

How about your car payment? If it’s $350 a month that means every single month you’re working 28 hours to make your car payment. So if you stopped by Starbucks each morning, went to happy hour once a week, and had a $350 monthly car payment you’d spend over $500 a month. At $12.50 an hour net that means you’d have to work over a week each month just to pay for those things. And you haven’t even paid for any of your necessities yet (a car payment is not essential). This is all money you’re kissing goodbye. You’ll never see it again. Those little perks don’t seem so great now do they? But over the course of time they do add up to significant sums you’re giving up.

Looking at this example from another perspective, what if you didn’t spend money on those items? You could work a week less a month and live exactly the same in all other aspects of your life. At $12.50 an hour net, if your rent is $1,000 a month you’d be working 80 hours a month just to have a roof over your head. That’s two full weeks of work down the drain. What if you could eliminate your rent by owning a house that’s paid for? You could literally work half the time and still live just as well – better actually because you’d live in a home of your own. Or you could work the same number of hours and essentially double your pay.

The message here is that so much of the time we spend working is wasted to pay for things that we don’t need and never see again. This technique helps give us perspective on the one thing we’ll never have any more of – time.

To figure out your net hourly rate, divide your net pay by the number of hours worked for that pay period. Then to determine the time you’d have to work to pay for something, divide the cost of that expense by your hourly rate. Figure 6 contains a chart of how much you have to work to pay for your essentials.

The table assumes 2,000 of work per year (50 weeks, 40 hours per week). If the total of your monthly expenses adds up to more than 160 hours, you've got negative cashflow. This means you're spending more than you make. That is extremely bad for your fiscal health. So start saving. It’s ok to spend a little. It is also absolutely vital that you save enough to have some reserves on hand in case of an emergency (or opportunity). Better to have it and not need it than the other way around.

Figure 6

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