I’m bringing you math on Monday! Stay with me. This won’t hurt.
I am the worst with math! My eyes glaze over any time someone throws numbers at me, but add a dollar sign, and my interest returns with interest.
I think the biggest reason people overspend is because they’re not seeing the real cost behind each item, but there’s an easy way to calculate the real costs of any item.
• Look at your check stub and find your NET pay. That’s take-home pay after taxes and deductions.
• Divide your take-home pay by the number of hours you worked.
For example: Let’s say your take-home pay for a two week period was $1000. Divide by 80 (assuming you work 40 hours a week). You have a net worth of $12.50 per hour and after taxes and deductions.
The difference between Gross and Net pay will vary depending on your tax bracket and the number of deductions you take.
None of this matters in the big picture. Well, it does, but only on April 15th when it’s time to pay taxes. For our purposes, (what it costs to buy something) we want to focus only on your hourly take-home pay.
If you earn $12.50 an hour (Net) that’s going to be your magic number.
• So if a paperback costs you $11.00 that means you will have to work 52 minutes to earn that book.
The calculation is: 11 (the book) divided by 12.50 (your net pay). The sum equals .88 (or 88 hundreths).
88 is a percentage of 100% of your take hourly home pay. 88% of 60 minutes (the hour you worked) is 52 minutes.
• If a dinner out costs you $25 (with tip), you will need to work two hours for that meal. 25 divided by 12.50 equals 2 hours.
• If a new coat costs you $95. 95 divided by 12.50 equals 7.6 hours.
By now you’ve gotten the picture. Things are way more expensive than you think once you bring the numbers down to how long you have to work to earn them.
When I was at my 9-5 job, I certainly didn’t want to be there any longer than necessary. This meant I better really appreciate that new pair of jeans or that dinner out because that’s not just money, it’s my time.
Today of course, we’re on a fixed income. We’re living on whatever we saved for our retirement. You bet we’ve cut back on eating out and entertainment. Tangible goods and services are scrutinized for long term value. We can’t afford to impulse buy. We make allowances for birthdays and anniversaries, but for the most part we’re good with our money.
This week we’re on a prescribed No Spend Week. Mandatory things like insurance and medical expenses came due last week, so it’s a good time to cut back and not buy anything for a whole week.
Have you ever looked at how many hours you had to work to buy something? Was it a revelation? Will you look at impulse buys differently after this?
Are you good at math? Greg is the math wizard in the family. The dogs are pretty good too. They always know whether they got a whole cookie or a half cookie.