Stumble It!
The Value Of Money
Trying to save money is often like crash dieting. You can deny yourself everything you want for a while, but eventually it will catch up to you, and you will spurge and ‘eat up’ all the progress you had made. So, nutritionists recommend that you live healthy. Don’t deny yourself everything you want, but eat responsibly and understand the cost of what you eat. The same thing can be said for your finances. You can lead a healthy, happy financial life and still get what you want.
Living Financially Healthy
Are you getting the most for your money? Living financially healthy does not mean denying yourself everything, but spending your money in ways that makes you happier. We agonize over big decisions like should I buy a new car. We weight the benefits to the costs, and make the best decision. But, we don’t put that much thought into how we spend our money every day. There are two things you need to ask yourself when spending money:
- How important is this to me?
- Is it worth the cost to me?
How Important Is This To Me?
Let’s say, you like a cup of Starbuck’s coffee in the morning. It gets you going in the morning, and makes you feel good, but you don’t buy one because you feel guilty spending the money. However, for lunch everyday, you eat out at $30 a week, but it’s not important to you, and you could just as easily brown-bag it for $5 a week. You are not spending your money in the way that makes you happiest.
Is It Worth The Cost To Me?
To answer this, you need to understand how much your money is worth to you. Any economist will tell you that the cost of an item Is Not Equal to its price. Cost is equal to the value of the opportunities you give up to buy something. For example. Say you stop on the way home from work everyday and buy $5 in lottery tickets. The price is $5 a day, but you could use that money to take your wife out on Friday night. That is an opportunity lost. Also, you have to consider the cost to you to make that money. You may have had to work a half hour or an hour for that money. That is the cost of the lottery tickets.
Understanding The Value Of Your Money
To understand the value of your money, you need to think about how hard you have to work for it. When you are deciding whether to buy a book or a cup of coffee, that can not take the place of paying rent or food, so you have to think about how hard you work for your spending money. For example, let’s say you bring home $2000 a month, and you pay out $1500 a month in bills. You have $500 left over. Let’s say you work 160 hours a month. Then, the value of your spending money is $500/160 = $3.13 / hour. So, buying lunch out is worth 2 hours of work. Now, you can really decide if buying it is worth it to you. Let’s determine the value of your money. Don’t forget to include all your expenses (Rent/Mortgage, Utilities, Food, Gas, Child Care, etc.)
