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Getting real value from your money

Overview

Published: 01/05/2012

by WARREN MACKENZIE

Are you really getting good value when you spend your money? The enjoyment from some discretionary purchases will last for
many years, while in other cases (travel, dining out and alcohol) the enjoyment is quickly gone. 

 

To get the greatest value for your money you need to know how much you really earn for an hour’s work. Then, before spending your money, ask yourself if what you are buying is worth the necessary number of hours of work.

 

For example, assume you work 40 hours per week (about 2,000 hours per year) and earn $50,000. That’s $25.00 per hour –
before income tax, CPP, UIC, travel costs to get to work, day care, work clothes, etc. After deducting all work-related costs, the true amount you make may be closer to $15.00 per hour. It gets worse. When you consider the travel time to get to work and the unpaid time preparing for work, the work week is almost certainly more than 40 hours. So after all costs and all times are
calculated, you may actually be earning something closer to $12.00 per hour.

 

Let’s say you want to take your spouse or a friend out to a restaurant. The meal and wine, the tip, the tax, babysitting
and parking add up to $96. At $12.00 per hour, you will have to work for eight hours to pay for this evening out. Was it worth eight hours of work? That’s a judgement only you can make. As another example, imagine a two-week winter
vacation costing $2,400. ­That will require 200 hours (five weeks) of work. It may be worth it – but only you can say.

 

When the same amount of money is being spent on a renovation, it may be recovered fully when your sell the house. Even
if the cost is not recovered, but you increase the enjoyment of your home during the next 10 years, then a $2,400 expense may work out to one additional hour of work for more than 100 hours of greater enjoyment of your home. Is it worth it? Only you can say.

 

Interestingly enough, one way to maximize your spending pleasure is by planning in advance. The reality is that sometimes
the best part of the trip is in the planning and anticipation. Unfortunately, when we buy on impulse, we miss this pleasure.

 

Buying on impulse and paying for it later will also increase the cost. Take the winter vacation expense of $2,400; if you
put the cost on your Visa card, and paid it off over 12 months, the additional cost is about $240. That requires another 20 hours of work.

Inconsistent and irrational spending habits

 

It’s funny how we go out of our way to save money on small items – where the total savings is only a few dollars at the
most – and on other occasions (travel, restaurants and alcohol) we spend our money with hardly a thought to the lasting value.  

One of the benefits of knowing how much we earn per hour is that when we know what our time is worth, say $12.00 per hour,
we will be less likely to spend 15 minutes ($3.00) trying to determine whether you get greater value from the $2.79 regular size box or the larger box costing $4.29.

 

We are also less likely to use an hour of our time and $3.00 worth of gas to drive across town to save $10.00 on the
purchase of an item on sale at another store.

 

Purchases such as for renovations or home decor may actually be an investment in that they increase the value of our
home. Some items of furniture may last for 20 years or more, so the cost, amortized over 20 years, is actually quite small.

 

The bottom line is that we exchange our time for money and then we exchange the money for something else that we want.
We’ll get more of what we want when we know the value of our time.  

 

•  Warren MacKenzie, CA, CFP, CIMA, is president of Weigh House Investor Services of Toronto. He can be reached at
warren.mackenzie@weighhouse.com or 416-640-0550.

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