A money diet is not about how much money you’ll save by staying away from the sweets. This is about what your diet can teach you about money. I’ll explain.
I’ve been trying to lose 10 pounds for about as many years. It’s frustrating, but as of this morning I have hope.
I re-realized that when I down a Ding Dong, it’s going to cost me 30 minutes on the treadmill to work off. Is 15 seconds of sugar-induced delight worth 30 minutes on the treadmill? Not when I think about it. If I keep the idea of “time cost” uppermost in my mind, I hope I’ll be more successful with my eating habits.
What’s all this “Twinkie Talk” got to do with money? Plenty.
You can apply these same “cost” principles to make smarter spending decisions.
Let’s say you want to go Vegas for four days. You calculate that the total cost will be $1,500 – including gambling. Let’s calculate how much time this fun excursion is going to cost you.
1. Determine what you earn each day.
Hopefully, if you do spend the $1,500 it’s not coming out of your old 401k or IRA. That would add even more to the cost. Let’s assume you’ll pay for it from earnings.
If you are retired, take your pension, Social Security and interest earnings and divide that number by 30. So if you have a net (after tax) income of $4,000 per month, you earn $133 per day. If you have a job you probably work 20 days each month, so divide your take home pay by 20. If you bring home $4,000 each month, you earn $200 each day you work.
2. Calculate the number of days it will take you to earn the money you want to spend.
Using the example above, if you earn $200/day, you will have to work for 7.5 days to earn enough money to go to Las Vegas. That’s about a week and a half. If you go to Las Vegas, you spend a day traveling (back and forth) and you sleep eight hours a night for three nights (24 hours). Your net “play time” is two days. Is two days’ play worth a week and a half at the grind? Maybe. That’s up to you.
But when you think about the “time cost” trade-off, it’s easier to make good decisions. Use this approach for everything. I did and it helped me get a lower cell phone bill. That’s why I cut out the internet service and went back to my old cheap boring phone. Not only did I save some shekels, I also save a ton of time by NOT playing the games and wasting time on the internet.
This isn’t the only way to approach spending. It may not be the best way for you. But it’s an additional tool you now have. My experience tells me that when I want to do (or eat) something, thinking about the “time cost” may just be the thing that saves me.
What is your approach to making decisions like these? Have you used the “time cost” analysis to make decisions about food or money? What have you learned in other aspects of your life that you apply to your finances?
I’ve got a lot more questions but I have to go now…its lunch time!
SJ says
April 8, 2009 at 8:22 AMBut that only makes sense if the amount of time you have to work is equal to the amount of time you have to play…
I think when you do things like that you get skewed towards over saving and what not… Shouldn’t you also weigh in the benefits =)
(the happiness willl last x days after the event lolol)
Neal says
April 8, 2009 at 10:51 AMI see your point SJ and its important. I think this is a good tool – but not the only one.
IMO, money is a exchange medium for time so in many ways, this really IS the trade off.
I took a 7 day cruise w/my family that cost me thousands…..and it was the best use of money ever. My wife and I savor the moments daily. But we did this calculation prior to making the trip and we decided to spend the money.
So I do agree that it will make us pause before spending, but it won’t always end up with a thumbs down.
ObliviousInvestor says
April 8, 2009 at 3:45 AMI try to remember to do this all the time. It’s a great way to put things’ real cost in perspective. (It helps me remember that my time is quite literally my life. So if I’m wasting my time on something…)
GetRichSlowly also talked about doing this once. He even suggested backing your fixed expenses out of the amount you make per month. That way, you can see that rather than making $4k per month, perhaps you only have $1,500 per month in disposable income.
When you look at it that way, something that costs $1,000 takes roughly 3 weeks to earn rather than 1 week.
Neal says
April 8, 2009 at 10:52 AMGreat comment Oblivious. That perspective makes sense. I guess I better leave my fuzzy dice at home!