Last week I talked about how I often use a waiting period to see whether I really want to make a purchase or not. If I still want something after thinking about it for a few weeks, then I will likely go ahead and buy it. But sometimes I lose interest or realize that I don’t want the item as much as I thought. This has been a great way to take a more critical look at my purchases. Another tool I love to use for this kind of decision making is the “hourly rate comparison.” Alex introduced this exercise to me early on and it really resonated with me as a way to re-conceptualize my purchasing decisions.
It’s quite a simple exercise. When you look at an item to buy, translate its cost into the number of hours of work it would take you to pay for that item. Then think about whether you are willing to spend X number of hours for that item. You think about purchasing the item for hours, instead of dollars. Let’s say you are looking at a pair of shoes that cost $150. If you earn $10 per hour, then it would take you approximately 15 hours of work to pay for those shoes. Would you work an extra 1 ¾ days for the shoes?
If you have a full-time job (about 2,000 hours a year) and don’t know what your hourly earnings rate is, just take your annual salary, knock off three zeroes (so $45,000 becomes $45), and divide by 2 (so $45 becomes $22.50). That’s basically your nominal hourly rate. In actuality, your hourly rate is usually 25% or so lower than that, because you need to factor in taxes, commute time, and work-related expenses. If you want to factor that in, then just divide by 2.5 instead.
This can help re-frame purchases from being about money to being about time. And no matter how much money we have, time is always finite. Many of us put a lot of blood, sweat, and tears into our work and it’s important to value that time by using the money you earn intentionally. Time is often a more precious commodity than money and I think this exercise helps us remember how our time and money are connected. When we spend money we are saying that our time was worth the purchase of the shoes, or dinner out, or new car, or manicure, or fishing pole.
This exercise gains even more strength when coupled with your financial goals. For example, if you are saving up for a trip to Europe you may ask yourself - would I rather eat out for lunch every day this week or spend an extra day in Rome? If you want to spruce up your kitchen, then you may ask yourself - would I rather go to happy hour every week or invite friends to dine in my newly remodeled kitchen? Keeping our financial goals in view helps us focus on what we truly value.
Of course, the great thing about this exercise is that it convinces us not to buy things we don’t need BUT also to buy things that we would really use and value now. When I was looking for a new computer a couple years ago I was torn between a fancy, light, small Dell XPS or a cheaper, heavier, and clunkier version for half the cost. I felt bad about how much I wanted the more expensive computer. But when I translated the price into hours and realized that I would need to work an extra week to pay for a computer that I would use every day for years, it completely re-framed the purchase. A week seemed like a reasonable amount of time for something I would use every day for work (since I work remotely) and play (for the blog, knitting patterns, movies, and baby goat videos). So I went with the more expensive computer and it was totally worth it. I love everything about it and have REALLY enjoyed using it. The hourly rate comparison helped me remove some of my misplaced guilt about the purchase.
I love this exercise because it helps to realign priorities and adjust perspective. It helps identify what we really want, versus what we are distracted by or tempted by right now. I can forego a lot of meals out and a bunch of new clothes if it means a trip to Puerto Rico. It’s all about putting purchases in terms that resonate with you; if you aren’t motivated by money then time can be more compelling.
What do you want to spend your time on?
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