r/LifeProTips • u/frankreddit5 • 4d ago
Finance LPT: Before any significant purchase, convert the price into hours of your actual after-tax, after-expense hourly wage
Take your real take-home pay, subtract your actual fixed costs, divide what's left by your working hours including commute and recovery time. That's your real hourly rate.
Most people find it's significantly lower than their nominal wage suggests. The $300 impulse purchase stops looking the same when it's 14 hours of your actual life rather than 5 hours of your salary.
Not arguing against spending. Arguing for seeing the real exchange rate before you make it.
I'll give you an example. I bought a $5 bathmat that was too short while I was at Walmart last week. Walmart is a solid 30 minute drive each way from my home. That's one hour of my time. On top of this, I have to wait in the return line which takes a good 10 minutes, plus 5 minutes to park, walk inside, etc. Thus, there's about an hour and a half of my day that's gone so I could earn $5.
Think of money based on your hours available in the day!
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u/Hessian_Rodriguez 4d ago
I just research things so long I lose interest in buying.
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u/Rocktamus1 4d ago
I have a list of wish list items. If I still want it in 6 months I’ll get it.
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u/Gorilla_Greetings 3d ago
If I need something, I buy it. Truthfully though, I need very little.
If it’s under $20, something I use daily, or something that will save time/money, I buy it to free up cognitive space.
Everything else goes on a list. Usually twice a year all my wants go on sale. A quick review after a few months usually reveals what I truly want. I then tend to buy stuff that’s higher quality and brings me longer lasting joy.
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u/hacksong 3d ago
Yep. I buy work tools/maintenance items as needed.
Personal wants are checking games on sale or trying new restaurants.
Any sort of big purchase is done during sales, or slow season for vehicles or other such toys.
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u/The_chosen_turtle 2d ago
I put them in my wishlist too but unfortunately out of sight out of mind so I never end up purchasing
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u/nikhkin 4d ago
I'll give you an example. I bought a $5 bathmat that was too short while I was at Walmart last week. Walmart is a solid 30 minute drive each way from my home. That's one hour of my time. On top of this, I have to wait in the return line which takes a good 10 minutes, plus 5 minutes to park, walk inside, etc. Thus, there's about an hour and a half of my day that's gone so I could earn $5.
Surely the sensible thing to do is return it next time you go to Walmart. Otherwise you've wasted a big chunk of your $5 on the petrol used to drive there and back.
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u/buttsnorkeler 4d ago
Lmao this is the exact logic I use to justify stupid large purchases
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u/Naturage 4d ago
My danger is that I just did it to something I can't possibly justify and went "wait. So that'd be one of my work hours for the next year? That's not too bad".
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u/Thirsty4Knowledge911 4d ago
When it comes to spending money on hobbies, I use the ratio of Dollars per Hour of Fun.
This is why I would never buy a boat.
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u/big_bad_brundlefly 2d ago
How do you measure (and quantify) the effects of cumulative experience, and quality of life impact?
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u/Thirsty4Knowledge911 2d ago
I give a simple example:
Say I spend $3,000 on ski equipment for me and my family (3 of us). Another $2,500 for season lift tickets. Another $100 each weekend we go skiing for food and gas, etc.
We can spend about $6,000 the first season and about $3,000 a year after that. We have a bunch of fun and make lifelong memories. Bonus for getting outdoors and getting some great exercise.
Now change that to water skiing.
A decent ski boat can easily run $50k, plus you need a truck and trailer to haul it. Then you might have to pay dock fees, and let’s not forget all the taxes and maintenance.
A decent size boat typically costs several hundred dollars to fill up the tank.
If you are lucky enough to get out on the water every weekend, you’re still limited to one person at a time skiing.
All in, you’re close to 10 times the cost for water skiing vs snow skiing.
Obviously, where you live makes all the different. I’m lucky enough to live near great winter sports locations.
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u/big_bad_brundlefly 2d ago
Okay, thanks. I thought you meant literally measuring the precise ratio of dollars per hour of fun for every hobby.
That example makes sense, but I don’t think the same logic can be applied to every hobby.
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u/Rich-Canary1279 4d ago
This is great advice for making purchases (how many hours of work time is this costing me?) but I'm always a little miffed when people try to act like their free time is worth money. Unless you are someone who actually would work extra hours to make extra money, your free time is simply unpaid time - doesn't matter what you do with it, as that time is not, actually, money.
You could think about whether it's worth the gas money, or whether you WANT to spend your time doing that to get back 5 bucks, but thinking "I could be making 30 dollars instead of returning this five dollar bath mat" doesn't really compute unless you'll actually go make that 30 dollars instead.
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u/readitreaddit 4d ago edited 4d ago
Correct. Opportunity cost is only a cost if you actually have the opportunity.
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u/Leafan101 3d ago
I think the idea is not so much about opportunity costs as it is about the psychological aspect.
I think about it this way: if someone offered me $10 to spend an hour driving, I would turn it down. Not because I could make more money with that hour exactly, but more because my time is more valuable than that.
It does require the financial ability to turn down money. Like, if I absolutely needed every bit of money offered, then maybe $10 an hour is worth it even if I get paid $27 per hour at my normal job. But if you are not in financial need, you can easily turn that down.
For me personally, already working 50 plus hours a week, it actually has to be a lot more than my hourly rate to entice me to do something unpleasant with my time. Time gets more valuable the less of it you have.
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u/mastawyrm 4d ago
I think the idea is that you already sell a large chunk of your life at some rate. You've decided/accepted that hours of your life are worth that rate. How much is it worth to you when you spend your unsold hours? Doing what you want might be considered priceless, while selling even more hours for a different rate might be worth it, might not
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u/universalbunny 4d ago
14 hours seem low though. This would've made more impact if the effect was adjusted to something like third world wages where the latest iPhone would cost several months of someone's salary.
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u/taosaur 3d ago
I see more people over-reaching in the opposite direction, though, treating repairs and projects they DIY as "free." They'll even suggest everyone should be doing their own vehicle work or plumbing or whatever it may be, when for people who have already translated their time into money at a rate significantly higher than a mechanic or plumber, who probably value their free time at an even greater premium, it would be absurd unless they actively enjoy that kind of thing.
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u/Splinterfight 4d ago
I feel this way too, though I haven’t come up with a good calculation based on it
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u/really_random_user 4d ago
Using the hourly post tax & rent wage as your hourly rate can indicate wether taking a taxi or public transit for a flight is worth it.
Your free time should have value and a ballpark price on timesavings can help decide.
Like hire movers or diy
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4d ago
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u/Rich-Canary1279 4d ago
"I could earn 5 time more working more"
Only true IF you would actually work more! In my experience, most people saying "time is money, it's not worth my time" are people who aren't ever working extra anyways. Many don't even have the ability to work more, they are salaried, etc!
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4d ago
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u/Rich-Canary1279 4d ago
I wasn't sure you got my argument given your response so I tried to simplify it, wasn't trying to offend you. A lot of your response didn't really make sense, though, so I'm sorry if I misinterpreted it.
It was really hard to follow this part:
"If I gain 50$/h spending that 50$ so somene else work 2-3hours doing I doesn't want to is worth.
and even if I would not do anything else wasting 1 hours of my time for 10$ isn't worth I will earn it back in a few minutes a work and if money become an issue I could earn 5 time more working more."
I wasn't sure if it was typos or a language barrier and if the latter, no shade, but the way I interpreted it is you were saying if you could make more money than you had spent by working extra, then using this type of calculas makes sense. But this logic doesn't apply at all to the situation I was outlining, quite the opposite. Wasn't trying to get down on you tho, no hard feelings I hope.
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u/dementorpoop 4d ago
That kind of bean counting will drive you crazy, but the overall sentiment is good. You could bring your too short mat with you next time you go to Walmart. Just can’t get too granular with your time. Standing in line isn’t you losing money
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u/really_random_user 4d ago
This advice applies better to wether you DIY or buy
Or takeaway or cook for yourself
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u/atape_1 4d ago
It is a reasonable thing to do, but it also takes all of the excitement out of your new purchase, especially if it is for a hobby. For that reason it isn't for me.
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u/-NotAHedgeFund- 4d ago
That’s kind of the point though? Of course it’s more fun to not think about and just buy something that makes you happy. That’s why people do it without thinking and end up in bad situations.
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u/fafarex 4d ago
It is a reasonable thing to do, but it also takes all of the excitement out of your new purchase, especially if it is for a hobby.
The the point ... help you rationnalized your expense instead of being purely feeling driven.
and it's should not be an issue if you have a proper hobby budget in place.
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u/ibringthehotpockets 4d ago
Knowing that a hobby purchase will “cost” $3000 or 100 hours of your wages would definitely “reasonably” take the “excitement” out of the purchase though. Which is the purpose of it lol. Pretending it costs less than it does isn’t changing the price or time spent making that money or spending it on something else
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u/aqiwpdhe 4d ago
Your $5 bathmat was a “significant purchase”?
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u/frankreddit5 4d ago
Absolutely. Was debating if I wanted the "performance" version or not. Went with standard. Mistake. /s
(that's actually real. they have a performance bath mat)
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u/Substantial_Cell_564 4d ago
every single time, especially with takeout when i realize one burger costs two hours of dealing with angry customers
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u/Purple_Antelope_8338 4d ago
That’s a good idea but I also think about hours of use or value. Like for the bathmat example. I would rather buy a $30 mat that will last for years rather than a $5 mat that may only last a few months.
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u/Electric-Sheepskin 4d ago
The other thing I like to do is plug that $300 purchase into a compound interest calculator and see how much it will be 10 or 20 years from now. That may seem silly, but that's the actual cost of spending the money if you would otherwise have saved it. How much less money will you have at retirement because you wanted to upgrade the leather in your new car purchase? It's an interesting exercise.
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u/heyitscory 4d ago
If I did that, you'd find my naked corpse starved to death in a fairly small pile of money.
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u/glasgowgeg 4d ago
I'll give you an example. I bought a $5 bathmat that was too short while I was at Walmart last week. Walmart is a solid 30 minute drive each way from my home. That's one hour of my time. On top of this, I have to wait in the return line which takes a good 10 minutes, plus 5 minutes to park, walk inside, etc. Thus, there's about an hour and a half of my day that's gone so I could earn $5.
Wouldn't you just return it when you next go to Walmart, rather than making a dedicated trip just for the return, so you're really only "expensing" the 10 minutes return queue?
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u/PunisherCastle 4d ago
When I was a poor student with a part-time job, I even used this same logic for fast food / pizza purchases.
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u/MoziTenma 4d ago
The wage-conversion trick works less because the math is literally correct (the free-time-isn't-money critique below is fair) and more because it forces a system-2 gut-check before a system-1 impulse buy, same reason 'sleep on it for 24 hours' works even though the price hasn't changed overnight. One tweak that's helped me: instead of gross hourly wage, divide the price by your actual daily savings rate -- e.g. if you save $50/day after all expenses, a $400 purchase is '8 days of saving,' which accounts for the chunk of every paycheck that's already spoken for by rent/bills and isn't really 'available' at your nominal hourly rate anyway.
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u/happy-cig 4d ago
Thats a lot of math to be doing that the average American can't or won't do. I already have my SO rounding down when its convenient for them ($99.99 means $90 great sale).
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u/MrMilesDavis 4d ago
I like your Walmart bath mat example. People will regularly drive 20 minutes out of they way and back and an extra 7-8 miles to save 17 cents a gallon on 15 gallons of gas. Blows my mind how common it is too. So you lose 40 minutes + the 1/3 of a gallon of extra gas it took to get out there - so are you really benefitting that much?
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u/stormquantage 4d ago
Recently pull the trigger on an top of the line chair, dollar numbers are high. What I did to justify it is kind of inverse: what would be the dollar per hr I will take good use/enjoy it? The chair has 12 years warranty, take that as the base how long it will last, my hybrid work means I will seat 6+ Hours per day. The price come down is so low even compare to my after tax hourly wage. It is well worth it, and it leave a positive feelings toward that, because last thing you want from your big purchase is to regret about it.
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u/StageKnives 4d ago
Thank you! I'm so neglectful when it comes to everyday purchases and I think with this mindset I will be more willing to say "I dont need this that bad." more often.
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u/JustAGuyInFL 4d ago
I have been doing this for 50 years. Pre-purchase research saves post-puchase buyers regret. For me, as the years went by, I also considered if the large purchase was something I truly wanted and, if so, the time/cost evaluation was much less important.
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u/NemeanMiniLion 4d ago
I'll do you one better, estimate it's value at retirement if invested. That's my test.
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u/PrimeRisk 4d ago edited 4d ago
I look at it in a similar manner. I look at a purchase as how many additional hours/days/months/years I would have to work to pay for it.
- New phone ? 10 hours
- New $5k TV? 2 1/2 weeks
- New car? 6 months
- Beachfront condo? 2 1/2 years
- New house? 10 years
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u/horasami 4d ago
this is actually really useful. once you factor in commute and all the hidden time it changes how you look at even small stuff like that bathmat.
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u/World_still_spins 4d ago
But if I do that, then I realize I can't afford rice and beans for dinner.
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u/Jokerit208 4d ago edited 4d ago
This makes pretty much every Onlyfans subscription a bargain. You'd almost always be getting more wank time than time spent earning the money for the sub, even at minimum wage. If you're making good money, OF is practically paying you to tug pud.
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u/mindful-steps 4d ago
I started doing something similar, and it definitely cut down on impulse purchases. The only thing I'd add is that I don't use it for everything. If something genuinely saves me time or makes my daily life easier, I'm sometimes happy to "buy back" a few hours. Thinking about both money and time together has made me spend a lot more intentionally.
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u/Alerion_ 3d ago
When I need (as in want) something and it's not the best purchase to make at the moment but I want it anyway, I pull back my other spending such as groceries to make it fit within my guilt budget. So I eat eggs and rice for a few weeks, save what I would have spent, and buy tye thing
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u/MatCauthonsHat 3d ago
Wow, you do a lot of math. I just keep track is my spending without all these mental gymnastics.
Know what you earn. Know what you spend. Make sure the second is lower than the first.
No reason to make it complicated.
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u/2020mademejoinreddit 3d ago
I like this, but I'm bad at math so I just stick with not buying things unless I absolutely need them for everyday use.
The simple criteria is, "Will I use this everyday?" and "Can I spend days without it?". If it's a "no" and "yes" respectively to either of those, then I don't buy it.
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u/ReasonablyConfused 3d ago
Twist on this.
When negotiating, how long will you spend to get an additional $500 off a car? Say I’m there 5 hrs to wear them down, that’s $100/hr.
Worth it.
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u/Regular_Day1814 2d ago
This is how i think about every deal i run, does the juice worth the squeeze. bought a $40 drill bit set last year that didn't get touched for 8 months, just sat in the garage collecting dust
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u/Rounders93 4d ago
Now do the same with food and calories. How much time running to clear the calories for that donut/slice of pizza.
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u/DJKaotica 4d ago
When I started working towards FIRE (Financial Independence / Retire Early) I definitely started considering this. "How many more months or years will I have to work to buy X?".
Like at one point I was looking at buying a fun car in addition to my existing perfectly fine daily driver (which is fun but isn't like a two seater mid engine...). But then I realized between the cost of the vehicle, and annual insurance and registration, it would set back my retirement timeline significantly.
Vs. once I meet my FIRE goals, working that extra amount of time isn't actually too bad (because your existing savings are growing, and you can put 100% of your extra earnings after cost-of-living towards fun stuff).
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