In the world of personal finance, there's a concept that's gaining traction – equating your spending habits to the time you invest to earn that money. This approach sheds light on the true cost of your purchases, emphasising the value of your time. This idea is closely related to the book ‘Die With Zero’ by Bill Perkins, where he explores the concept of time wealth and the opportunity cost of our financial decisions.
Bill Perkins' book offers a unique perspective on how we use our money and time. In essence, it encourages us to question our financial choices and their impact on our lives. Equating spending to time worked is a practical way to implement the principles outlined in ‘Die With Zero’ and make more intentional decisions about our finances.
As the title of the book suggests, he implores you to spend for enjoyment and experience but with a practical overlay.
Time Wealth and the True Cost of Spending
Some people budget and track their expenses, but few take into account the true cost of what they're buying in terms of their time. By converting your spending into the hours or days of work required to afford a particular purchase, you get a clearer picture of its real value.
For example, if you earn $25 per hour (after tax) and want to buy a $500 smartphone, you'll have to work for 20 hours to pay for it. If you only work 20 hours per week, all of that weeks' income has been taken up by your purchase before any other costs are included.
Suddenly, that purchase doesn't seem as attractive when you think of it as a substantial chunk of your time.
Prioritising Expenses
Equating spending to time worked can help you prioritise your expenses. You might find that some purchases are worth the time you'll invest in them, while others don't measure up. It can lead to more conscious spending choices.
Consider the classic dilemma of dining out versus cooking at home. If dining out costs you $50, and you earn $25 per hour (after tax), that meal is equivalent to two hours of work. By contrast, preparing a similar meal at home may cost you just $15 and an hour of your time. You can see how this perspective can encourage you to consider your choices.
Financial Goals and Dreams
Understanding the relationship between spending and time worked can also help you achieve your financial goals and dreams more efficiently. When you see the direct impact of your spending on the time you must invest, it becomes easier to evaluate the trade-offs.
For instance, if your goal is to save for a holiday, equating your spending to time worked will make it clear that every impulse purchase delays your dream. This awareness can motivate you to resist unnecessary expenses and allocate those funds towards your desired goal.
Achieving Financial Independence
Financial independence and early retirement are aspirations for many. By equating spending to time worked, you can make tangible progress toward these goals. You'll develop a heightened awareness of your financial choices and understand the opportunity cost of each purchase. Over time, this can lead to increased savings, investments, and ultimately, greater financial independence.
The idea of equating your spending habits to the time it takes you to work for that money is a powerful tool to enhance your financial awareness and decision-making.
Though not a common method of thought, next time you consider a purchase, remember that your time is a valuable resource – spend it wisely.
If you want to delve into Bill Perkin’s book ‘Die With Zero’, here is a recent podcast where he discusses his principles.
Don't miss out on any of our content - sign up to our free newsletter here or join us on our socials below!
Comments