As good as it feels to #treatyoself, it makes sense to work out if you can afford that new thing you’re dreaming of before the credit card bill comes rather than after.
Many people think about how much they earn per hour when judging if an item is affordable for them or not, but few realize that it could be costing a lot more than you think…
Calculating how many hours you would have to work to afford to buy something, isn’t as simple as dividing the cost of an item by your hourly salary.
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The best way is to calculate your hourly salary, is after factoring in your essential expenses (we’ll explain these in a moment). This will help you understand how much disposable income you actually earn per hour.
Here’s how to do it: Refer to your paystub and find your take-home pay after taxes, social security contributions, personal insurance, and pensions are removed.
For this example, let’s assume that your take-home pay is $2300.00.
You now need tally up your food, housing, transportation, and health care costs for the month. These are your essential expenses.
- Rent/other household costs: $850.00
- Grocery Bills: $320.00
- Travel: $175.00
- Health Care: $280.00
This means your real take-home pay, after essential expenses, is $675.00.
Divide this figure by the number of hours you work per month. For instance, 160 hours ( which works out to 40 hours per week).
$675/160 = your disposable income works out to $4.22 per hour.
This means you will need to work for almost 24 hours (or over half your working week) to be able to afford a $100 purchase. And don’t forget that take-home pay is calculated before education, clothing, entertainment and any other ad-hoc purchases you need to make day-to-day.
Clever Fox Budget Planner – Expense Tracker Notebook
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So, although at first glance, that ultra-desirable new purchase might seem affordable according to your hourly pay, remember that you don’t always earn what you think you do in a few hours of work.
Depressing we know, but it’s better to understand the true cost of what you buy before the bills stack up. When you’re aware of how much of your working hours are being invested into purchasing something, maybe you’ll realize that you don’t really need it after all… or at the very least it might convince you to hold out for the sales. 😉
For more advice on managing your money, I highly recommend these books
Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence
Broke Millennial: Stop Scraping By and Get Your Financial Life Together
Why Didn’t They Teach Me This in School?: 99 Personal Money Management Principles to Live By
You Are a Badass at Making Money: Master the Mindset of Wealth
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If you are looking for ways to start making some extra cash right away, check out our post below
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