The world of advertisements wants us to all treat ourselves like kings and queens, but the simple truth is doing so would benefit them more than us. While there’s definitely been a cultural shift towards embracing frugality (just look at Extreme Couponing on TLC), many people still struggle with budgets and keeping their spending under control. One of the best strategies I’ve heard of to moderate your spending is to start measuring your purchase costs in time rather than your money. It involves calculating your time-money exchange rate.
It might sound a bit odd, but start off by figuring out your approximate hourly wage. That’s a good benchmark for what your time might be worth – it won’t be perfect, but it’s a start. According to government statistics, the average hourly wage in the U.S. is between 23 and 24 dollars an hour. Let’s say $24 for this example. So, each hour of time has a value of $24.
Let’s start by looking at something simple like lunch. On the surface, it may seem like eating out for lunch saves time, but that’s not quite true if you look at the time exchange. A half-decent lunch can easily cost eight or ten dollars, which works out to about a third of an hour of work. Or, you can spend five minutes and make a sandwich at home, or pack some leftovers. So, eating out actually “costs” you 15 extra minutes of your time, because you need to work that much longer to pay for lunch. On a more extreme case, I knew someone who would take a $20 taxi ride to work every Monday morning because she didn’t want to get up early enough for the bus after the weekend. She spent almost the entire first hour she was at work just earning the money to pay for her indulgence. When you think about the time it takes you to earn the money for impulse decisions, the impulse decisions can feel a lot less attractive.
This strategy of the time-money exchange rate can be applied to things we don’t do as well as things we do. Take couponing for example. Many people still avoid couponing because they find it hard to see the value in small coupons of $0.50 or $0.75. I’m far from an extreme couponer, but before my grocery shopping trips, I take about 10 minutes to look through my flyers and a local coupon site or two. It’s unusual when I can’t find $5 or more in coupons that I can use. This puts my hourly rate at about $30 ($5/10 minutes x 6), which is quite worth the time I put in.
Does looking at your time-money exchange rate influence how you view your purchases?
Alex blogs at Searching for Happy and is experimenting with ways to have a happier, healthier, and more productive life.
Thanks for the chance to guest post!
This is a great perspective but one I often forget to implement 😉
Though sometimes it works against you. Like whenever I go get a latte (which are always “expensive” at $5 a pop) I justify it with “wow this doesn’t even take me 2 minutes to earn!”
True. That can be very dangerous if you’re earning a lot of money. But, truth be told, if it’s worth the 5 minutes of your effort (and it doesn’t break your budget), then it might be worth the money spent.
The time-money exchange concept always reminds me of some old Whopper Jr commercials that ran on television. Family members are talking about what they bought, only instead of using dollars they use Whopper Jr’s. You know, that new shirt cost 20 Whopper Jr’s! Thinking of spending in terms of something other than dollars really does put things in a different perspective, especially when you think about it in terms of hours.
Ha! I’d forgotten about that!
It’s a good perspective though. Sometimes object work better than hours. I have a friend who loves playing guitar. He equates purchases in terms of how many sets of guitar strings he could buy. It works for him.
Hi Alex and Daisy! This is a great post and something we can totally relate to! When we’re going to purchase something, CJ will say, “Do you know how many lessons we have to teach to buy that?!?” It puts everything into perspective, and we usually go without! It’s a lot of fun and really very little sacrifice!
I look at the hourly rate when I do something out of my routine, like calling a provider to lower or rectify a bill. If I get charged wrong, I can spend a lot of time trying to get justice, because it goes beyond the money and if you don’t do it they will wrongly charge many more customers.
That’s also true. There is a satisfaction element to fixing incorrect bills and to getting a good deal. Lowered bills keep benefiting you month after month!
I absolutely think about time and money, and how they’re related. For example, driving 10 minutes more (20 round trip) to go to a store where I can save $3.00 on a purchase isn’t something I would do. That’s like a $9 hourly rate, not even factoring in cost of fuel for the car. This is a good habit to get into, I think, as time is really more valuable than money in the sense that it’s finite.
I agree. Sometimes you can be time rich and money poor, such as if you were unemployed, but most of the time you only have limited hours in your day, and $3 is pricing yourself quite cheaply.
This is a great idea… If I actually had an hourly wage. My “income” (or the lack thereof) is generated from occasional gigs and stock market trades.
Thus my hourly wage formula would yield “undefined” most of the time.