Step 76: Translate Expenses into Time-Costs

Step 76 of the 100 steps mission to financial independence: Translate expenses into Time-Costs
Step 76: Translate expenses into Time-Costs

Every time you spend money you spend time. It’s not the good old “time = money” adage you should worry about, but the exact opposite: “money = time”, which although might seem to mean the same, is much more pertinent and important to remember than the first one. If you are like most people, the bulk of the money you have to spend each month comes from your job in the form of income. Each month you start afresh with a new paycheck of money coming in on one hand and also new bills to pay on the other.

It’s a logical sequence of how things work: You have bills to pay therefore you need a job so you can generate an income to pay these bills. Your job provides you with money so you can pay your bills (and then spend some more). The next month it starts all over again when there are new bills to pay and another month to work to pay these bills.

You are working for an income and regardless of your profession, your job is designed to trade time for money. You put your skills and expertise to use and in exchange your company gives you a salary. Change from a full-time job to a part-time one and you’ll likely get less money (less time = less money) and vice versa.

Of course some jobs pay better than others, some give your more or less holidays than other and some might offer bonus schemes, but the essence is nearly always the same: you give your time to do a job and in exchange you get money that you can then spend freely.

There is of course absolutely nothing wrong with this. Thanks to people trading in time for money our children are educated by teachers all around the world, doctors are saving people’s lives, new technology is developed, houses are built, restaurants offer people the opportunity to have a fun, relaxing and culinary experience, flights are operated to transport people.. The list is endless and our society couldn’t exist without people dedicating time to their profession in order to make a living.

But remember that your time is your time and you can never make more time. Your money is also your money but you can always make some more. You can’t make more time. Avoid the trap of working around the clock for 40 years without enjoying life. Yes, you need to work in order to pay those bills of course, but beware lifestyle inflation in which you always need to increase your wage in order to keep up with your ever-increasing expenses, resulting in working so much and so long that you are no longer able to actually enjoy what is important in life.

Counter this by becoming aware of the time-cost of an expense. From now on start thinking about money in terms of time. Figure out for each expense how long you had to work in order to get the money together to pay for this expense. You’ll soon find that you suddenly become a lot more critical of certain expenses and start to question whether you really need the latest of the latest gadget. Or whether you really want to eat out in a restaurant for a third time this month. Or whether you really need another pair of jeans if you still have 3 pairs that are totally acceptable still.

Say you make $15 net per hour and you are planning on buying a new flat screen TV of $599, that means it would have taken you almost 40 hours to earn that money, which is one whole week if you work full-time.

Any expense represents a certain number of hours you’ve worked in order to earn that money and whilst some expenses might be totally worth it, others might suddenly seem a lot less logical to make.

Your monthly break-even point

Once you know how long it takes to get your money together for your expenses, you can also start calculating your monthly break-even point. This is the moment that you have paid off all your bills, let’s say all of your fixed and variable expenses.

Imagine you earn $15 net an hour and you have your set monthly expenses of $2100. That means it takes you 140 hours to break even, i.e. 17.5 work days or 3.5 work weeks to earn that amount of money. The first 17.5 work days of each month you work just to pay your monthly expenses. Only after those initial 17.5 days do you earn money for your discretionary and savings expenses.

Knowing this might help you further with determining whether certain expenses are worth it or not and it will help you to cut down unnecessary expenses. By increasing your income (and avoiding lifestyle inflation) and / or reducing your fixed and variable expenses, the time you spent working to just pay the bills will go down, meaning you’ll spend more time working for discretionary (i.e. “fun”) expenses and / or savings for your future.

Step 76 – Translate Expenses into Time-Costs – in detail:

  • Start with calculating your net income is per hour.
    • Take your yearly net (after-tax) income
    • Work out how many weeks you work: There are 52 weeks in a year, so subtract the number of weeks you enjoy holidays from this. For example if you have 3 weeks holiday a year, you work 49 weeks per year.
    • Total the number of weeks you work by the number of hours you work per week to find out how many hours a year you work.
    • Now divide your yearly net income by the yearly number of hours you work to find out your net hourly income.
      • For example if you yearly net pay is $30,000 and you work 50 weeks a year, that means you make 600 per week and if you work 40 hours a week that means you get $15 an hour.
  • From now on simply remember that for every $15 you spend, you would have worked an hour. Divide any expense by your hourly wage to work out how many hours you would have worked for it.

Knowing your time cost of expenses suddenly makes everything much more real and easier to understand that money = time and that for ever dollar you have in your wallet, you have handed in time to your employer. It will help you to cut expenses and analyze better which expenses are worth the time you gave up for it and which aren’t.

Read more about my 100 steps mission to financial independence or simply decide to take control today and join us on our step-by-step quest on how to make your finances work for you, starting with step 1.

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