This is actually a more dangerous way to think about purchases because it presumes that all of one's income is disposable. If one makes $40,000 a year but have $18,000 a year in rent and $6,000 a year in food and other expenses then I can't really just say "well, this $3,000 flatscreen is expensive but it's only really three or four weeks worth of work."
I think the way my grandparents did it is still best: Set aside a certain amount of money from each paycheck that is designated for non-essential purchases. Money from that can be spent however you want. But that's the only account you can dip into, so it doesn't come into conflict with essentials or the rainy day fund. All you have to worry about losing by jackpotting the account is the ability to buy more toys for a while.
If you were to modify the calculator to account for this, the fixed costs should be deducted from salary and divided among all the hours worked?
So if you made $40,000 a year and had $10,000 in fixed costs, you deduct taxes & whatnot, the $10k, and then divide by 2000 hours. This gives you a true "net income after expenses" per hour. Yes?
I have always thought about my purchases this way, but consider it an additive labour cost. i.e. Do I really want to work an additional four weeks worth of work on top of what I am already doing for this TV? The answer is almost always no. Even for small items, where I could realistically work it off in minutes, the answer is still often no.
Also, whenever possible, I try to employ the two year rule: If I still want something after two years, it is probably worth purchasing. If I have forgotten about it, I would have forgotten about it in my possession as well.
Further, how much would that $20 purchase net you over an invested lifetime, at whatever reasonable rate of return you care to estimate with?
Further, if you buy it with a credit card that you never pay off (so common), how much more are you really paying with essentially a lifetime of credit card interest? And how much would that net you over an invested lifetime?
We saw a huge jump in conversions at work when I compared our product's price to a cup of latte on the landing page.
I believe that we make most purchasing decisions based on comparison to another product or a default no product state when even spending a dollar mentally seems like a lot of money. One way to counter the default state is to compare your product to another product the person is very likely to have purchased recently or does not consider expensive.
So many hosting companies compete on price between a buck/month to $9.99/month. Honestly, I think you destroy the price argument for vast majority of users if you just get 'em to think about the $5.99 grande coffee purchase every morning.
"The cost of a thing is the amount of what I call life which is required to be exchanged for it, immediately or in the long run." - Henry David Thoreau
I applaud the notion of examining the way you spend your money and thinking about whether the stuff you spend money on is really adding value to your life or whether it's just a habit that you've fallen into.
But:
You can save more in one call to a cable company than skipping your morning coffee, even though skipping morning coffee takes more work.
What could possibly be less work than not buying something? Not buying something usually saves both money and time.
And I don't know about his cable company, but getting a human being from any of my utilities on the phone is something I'd count as work.
When we pitch our product to potential customers, one of our big selling points is engineering time savings. It's easier to compare hours of work to purchasing something when:
a.) It's a necessity for a business and
b.) Each hour costs you real money (like engineering time).
The coffee comparison is helpful in day to day life, but it's more about quality than cost. Like hiring someone to clean your house, or paying for a restaurant to make you dinner. You could do it yourself, but you choose to increase your quality of life by paying more to have someone else do it for you.
Dan Ariely has made an app that does something like this, although instead of looking at the number of hours it takes to pay for something he compares it to what alternatives you could buy, so if you like coffee and you want to book a book you see how many coffees you would have to give up to get the book, similar but equally interesting concept. You can see his app here, its the first one Oranges2Apples
http://danariely.com/apps-tools/
I think two important metrics are being left out of the author's perspective:
1. What value do I assign to my personal free time?
2. Does my purchase have the ability to save me time?
For instance, a cup of coffee will cost me 15 minutes of my salaried time PLUS 15 minutes of my personal time (to drive, order, pay, etc). However, perhaps I am a writer and the coffee and coffeeshop environment will help me accomplish 2 hours of writing in 90 minutes. Then the whole thing is a wash.
[+] [-] mbleigh|14 years ago|reply
[+] [-] bunderbunder|14 years ago|reply
[+] [-] wangarific|14 years ago|reply
So if you made $40,000 a year and had $10,000 in fixed costs, you deduct taxes & whatnot, the $10k, and then divide by 2000 hours. This gives you a true "net income after expenses" per hour. Yes?
[+] [-] randomdata|14 years ago|reply
Also, whenever possible, I try to employ the two year rule: If I still want something after two years, it is probably worth purchasing. If I have forgotten about it, I would have forgotten about it in my possession as well.
[+] [-] read_wharf|14 years ago|reply
Further, how much would that $20 purchase net you over an invested lifetime, at whatever reasonable rate of return you care to estimate with?
Further, if you buy it with a credit card that you never pay off (so common), how much more are you really paying with essentially a lifetime of credit card interest? And how much would that net you over an invested lifetime?
[+] [-] badclient|14 years ago|reply
I believe that we make most purchasing decisions based on comparison to another product or a default no product state when even spending a dollar mentally seems like a lot of money. One way to counter the default state is to compare your product to another product the person is very likely to have purchased recently or does not consider expensive.
So many hosting companies compete on price between a buck/month to $9.99/month. Honestly, I think you destroy the price argument for vast majority of users if you just get 'em to think about the $5.99 grande coffee purchase every morning.
[+] [-] tocomment|14 years ago|reply
[+] [-] power|14 years ago|reply
[+] [-] scott_s|14 years ago|reply
[+] [-] Lagged2Death|14 years ago|reply
But:
You can save more in one call to a cable company than skipping your morning coffee, even though skipping morning coffee takes more work.
What could possibly be less work than not buying something? Not buying something usually saves both money and time.
And I don't know about his cable company, but getting a human being from any of my utilities on the phone is something I'd count as work.
[+] [-] sudonim|14 years ago|reply
a.) It's a necessity for a business and
b.) Each hour costs you real money (like engineering time).
The coffee comparison is helpful in day to day life, but it's more about quality than cost. Like hiring someone to clean your house, or paying for a restaurant to make you dinner. You could do it yourself, but you choose to increase your quality of life by paying more to have someone else do it for you.
[+] [-] wangarific|14 years ago|reply
[+] [-] realschool|14 years ago|reply
[+] [-] ThomBot|14 years ago|reply
1. What value do I assign to my personal free time?
2. Does my purchase have the ability to save me time?
For instance, a cup of coffee will cost me 15 minutes of my salaried time PLUS 15 minutes of my personal time (to drive, order, pay, etc). However, perhaps I am a writer and the coffee and coffeeshop environment will help me accomplish 2 hours of writing in 90 minutes. Then the whole thing is a wash.
[+] [-] alexchamberlain|14 years ago|reply