Where are the holes in your budget? When people start to get serious about saving money, they will begin reigning in the expensive ticket items and carefully research the best price for those purchases. Watching a large amount of money leave your bank account can be painful, so an obvious way to save money is to compare the price of your options before committing to spending a large sum. If you need new furniture, you may research and find that new inventory hits the floor biannually, and stores discount last season’s items to make room in the showcase area. The research will result in hundreds of dollars in savings.
However, an often overlooked part of a budget is the accumulated sum spent on your smaller ticket items. Shoppers tend to buy less expensive items on impulse without giving them much thought. Since a product is not expensive, you can justify tossing it in the cart and checking out. Over time, these purchases can be a hidden drain on your budget. They can also lead to regret when you realize the product is not worth as much as the money you spent on it.
Perspective: Let’s look at an example involving shoes.
Suppose you are shopping for a new pair of shoes. Do you stop to take the time to consider if you need the shoes? The average price of shoes for women is $49. Regarding your budget, that might not seem like a bad price for a pair of shoes. But what if we put it in terms of how many hours you had to work to earn the shoes?
According to the Bureau of Labor Statistics, the median wage for an American worker is currently about $57,000. A salaried worker with two weeks of paid vacation works 2,000 hours a year. Their hourly rate can be quickly estimated by dividing the yearly salary earned by 2. Therefore, we can calculate the average hourly wage rate at $28.50. (57,000/2=28.50) Of course, this is their gross salary. After deductions for tax withholdings, social security, and Medicare, the take-home pay would be about $22 per hour.
Therefore, an average person will work 2.2 hours to pay for an average-priced pair of shoes. A pair of heels could easily cost $150, which will require 6.8 hours of labor; a pair of Jimmy Choo’s can run $800 or more, consuming nearly a whole week’s work.
Coffee is another possible area of your budget that you might not scrutinize. A woman spends, on average, $2,327 a year on coffee from a coffee shop. She will spend 105 hours working to pay for her coffee. When your daily habit is to drive-thru and grab a coffee without considering the cost, it can affect your budget’s bottom line. Even changing your order to a less expensive coffee can make a difference.
A simple method to reduce impulse purchases is to ask yourself two questions:
1. Do I truly need this item?
2. Am I willing to trade ______ hour(s) of my labor to obtain this item?
So before purchasing something like the shoes mentioned in the example, you should ask yourself, “Am I willing to trade more than 2 hours (or 7 hours or 36 hours) of my time to own these shoes?”
The higher your wages, the fewer hours of labor it will take to make the same purchase. Conversely, if you make less than the median wage, you must work longer to buy a pair of shoes or whatever item you consider. A woman whose take-home income is $40 per hour will have to work a little more than an hour to buy an average pair of shoes, and she can buy a pair of Jimmy Choo’s for 20 hours of labor. A woman earning $15 an hour will take home about $11. She will have to work more than 4 hours for an average-priced pair of shoes and almost 14 hours for a dressy pair.
One pair of shoes will not break the budget but consider all the little purchases you might throw in the shopping cart, and it adds up. Use this new method of motivation to curtail your smaller impulse spending.
Knowing your estimated hourly take-home pay lets you quickly calculate the hours you must work to make any purchase. It is a wise idea to take a few minutes to figure out the investment in labor to make the purchase and evaluate if this makes sense. It will save you from making many regrettable purchases.
My book Honoring God with Your Money can provide you with more ideas on how to manage your money and achieve financial peace. My free quarterly newsletter is another great resource; click here to subscribe: newsletter
Susan's Reflections 