Back in college, when money was scarce for a broke college student, every penny counted. I worked a full-time job at a local restaurant while I also was a full-time student. I found different ways to make my dollars stretch, but also tried to allow myself to buy the things that I needed and wanted. I was struggling to prioritize these things, but then it had dawned on me: Rather than looking at my expenses as a cost in dollars, I should look at them as a cost in hours. This led me to look deeper into my finances and see what I could really afford.
Before I jump into a couple of examples, I will say that, at the time, I made around $12 per hour (not including tips) and worked roughly 40 hours per week. This means that on a bi-weekly pay schedule, I brought in $960 in pre-tax tax income. But of course, as Ben Franklin said, “in this world, nothing is certain except death and taxes.” After taking taxes out, I took home roughly $790 per paycheck or $1,580 per month. This was my pay in dollars, but going back to this blog’s theme of “how many hours did that cost," I needed to calculate the value of my time. I calculated that one hour of my time at work was worth $9.88 after-tax. I got his dividing $790 (my bi-weekly paycheck) by 80 hours (the amount of hours I worked in a two week period).
Let’s jump into our first example. At the time, my rent came out to $600 per month. So, how many hours is that? To calculate this, we will take my monthly rent and divide it by my after-tax hourly wage.
$600/$9.88 = 60.73 hours
This meant that I needed to work 60.73 hours just to cover the cost of my rent. That's over a week and a half of work!
Here's another example: food. For me, this included groceries and eating out with friends. I spent around $100/week or $400/month on food. So, how many hours is that? Again, we will take my monthly food spending and divide it by my after-tax hourly wage.
$400/$9.88 = 40.49 hours
We see that it took over a week of work just to feed myself!
The last example is a bit different than the other two. If you haven’t noticed, the last two examples were in the “needs” category. I needed to pay rent and pay for food to survive. That meant I needed to work over 100 hours per month just to meet most of my bare necessities. However, as a young tech enthusiast, I wanted all of the latest and greatest technology, ranging from the new iPhone to a new laptop. These things aren’t cheap. Let’s say a new MacBook at the time would have costed me $1500. How many hours is that?
$1500/$9.88 = 151.82 hours
151.82 hours?! That is nearly a whole month of work just for one thing. This got me thinking...“Do I really need a shiny new MacBook? Is it worth 151.82 hours of my life? Could I make it work with the laptop I already owned?” In this case, I chose not to upgrade to the MacBook and I used those extra 151.82 hours I saved towards future months’ rent, food, and savings.
After reading this blog, I would recommend using my methods with your own wage/salary to calculate the value of your time. Once you do this, you can start thinking about your costs in hours rather than dollars. The goal of this blog is to help you make more informed decisions with your time and money. This will help you avoid wasting precious time and instead spend it on the things that are the most valuable to you. If you have any questions or need help calculating the value of an hour for you, please follow the links below to schedule an appointment with a member of our team.
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Best,
Brandon