Spending and Saving

How Much for that Item in the Window? 25 Weeks.

If the recession hasn’t obliterated your non-essential spending altogether, how do you determine whether you can afford the fancier restaurant, the better suit or the weekend away? Most personal finance metrics take a monthly view on budgeting — how much money is coming in minus cost of regular monthly expenses (rent, utilities, groceries, etc.). Whatever is left over is usually recommended for savings. That’s when your own math comes in — of the amount left over, how much can you spend on the better life? And that’s between you and your conscience — or, uh, your personal budgeting philosophy.

But My Two Dollars has another view, one that while clever and perhaps effective in keeping spending fantasies in check, may also induce more guilt and a sense of burden: Tallying the number of work hours required to cover the cost of desired purchases. Here’s how it works: Say you earn about $50 per hour. If you’ve got your eye on a $38,000 BMW, that would cost you in cash, after taxes, about 1,000 hours, or 25 weeks of work ($50 x 25% taxes = $38/hour) — and that’s without laying out for food and shelter. Ouch.

A couple of other examples from My Two Dollars, based on a $20 per hour wage:

• Let’s say that a new decent-sized LCD flat-screen TV is $1,000. If you get paid $20 per hour at work (more than the national average), you have to work 50 hours just to pay for that TV… with cash. You have to work even more if you buy on credit and pay interest. How much better does the TV you already have look now?
• Some people I know spend $200+ on a single pair of jeans or $250+ on a pair of shoes – it’s crazy! I have never (and never will) spending that kind of cash on a pair of jeans! Who wants to work 10 hours just to own jeans? Not me, thanks. I have better things to do with my time!

My Two Dollars’ approach is probably best taken as a general outlook and not a specific guideline for spending, but you tell us. Have you ever tried this approach? Does it work?

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Tags: budgets, spending, Spending and Saving