In previous posts, I have mentioned the idea of making sure your budget and spending aligns with your values. I don’t think this is a very intuitive concept, but it is extremely important to take your savings to the next level. So today I want to take a deeper dive into this topic with some personal examples of how I’ve applied this in my life.
What is Value-Focused Spending?
The first time I heard of this concept was in the book Your Money or Your Life. Initially, I was not very receptive to this idea. I thought it was going to be free-spirited nonsense and have little practical application to my life, let alone my spending habits.
I was wrong, and I’m glad I kept reading the book. It defined money as “something you trade your life energy for.” Most people exchange their time at their job for money. Time is the world’s most valuable resource, because it can never be replaced. Every minute that passes is gone forever, and there’s no way to go back in time or gain more of it. So we trade our most valuable resource (time) for money by working most of our days at our jobs. We then go on to spend this earned money on things like food, housing, transportation, clothing, entertainment, etc.
Essentially, we pay for everything we buy with time, our most valuable resource. Before you make each purchase, do you consider how much time you are trading for that item? For example, let’s say you make $50,000 annually at your job. After taxes, let’s say you take home $42,000. Let’s assume you work 45 hours per week, so your hourly wage is $18. Now you go and purchase a new outfit for $200. You worked about 11 hours of your life for that outfit. Or let’s consider a $30,000 car on that salary. You’ll trade almost 1700 hours of your life for that car (if you finance it over 5 years at 5%, you’ll trade 1900 hours). That’s almost a full year of your working life that you traded just for your car alone.
What does Value-Focused Spending Mean for my Budget?
You can start thinking about all your purchases in terms of how many hours you traded for them, and then you can ask yourself if each purchase was worth that much of your time. When I evaluated my monthly budget in this way, it became clear I was spending my money on things I did not really value for the equivalent time I was giving up for them.
For example, I used to budget $200 a month on clothes. After I did the calculation of my hourly wage, I was trading about 9 hours a month just to earn my clothes. That means I was working a full day each month to pay for my clothes. To me, this was not worth the value I was getting out of those clothes. I decided I was willing to trade 2-3 hours of my time each month for clothes, so I adjusted my budget to $50 per month (or, more accurately, spending about $200 every 4 months on clothes).
There’s a calculator on the “Your Money or Your Life” website that can help you calculate your hourly wage. In addition to your actual hours at work, it also takes into account time you spend getting ready for work and commuting. This is because these are hours associated with working, and you wouldn’t be spending this time doing these things if you didn’t have your job. For example, I commute an hour per day on top of working 8 hours, so I really should divide my daily wages by 9 even though I only “worked” 8 hours. You may find from this exercise that you earn less money per hour than you think, when you consider all the extra hours that you spend on work-related activities!
You can start to ponder questions like: Is that $100 I spend going out on Friday nights worth the full day of work each week I spend earning that? Is the Starbucks drink I purchase daily worth working the first half hour of every day? Is my car payment worth the equivalent two full days of work each month? Am I okay with working 10 days a month for my current apartment, or would I rather move into a cheaper one and earn it by working 5 days?
Everyone has different values, and everything is worth different amounts of time to them. Maybe you love Starbucks, and that half hour of work every day is worth it to you. Maybe you really value your sense of fashion, and you’re willing to trade 3 days of working each month for it. No one can tell you whether your values are “right.” Budgeting is personal. This exercise is meant to make you aware of what time you are really trading for each purchase, to make sure your spending aligns with your values.
The Time Test
Another way to determine how much value you receive from purchases, is to determine how much time you spend using that purchase. Essentially, you ask yourself how much you have to utilize a purchase such that it becomes worth purchasing. This is especially important for recurring costs, because these will really add up over time.
Many of us have subscriptions we never use. Many people rarely or never use their gym membership, television streaming subscription, cable, music subscription, etc. Yet they continue to pay for them monthly, which can add up to hundreds of dollars each year wasted.
One way you can eliminate unnecessary spending is to figure out how much time you spend using these items per month, and then determine how much you’re spending on them per time.
For example, I had a Spotify subscription for a few years. I used it a lot in the beginning, but my use of it has gone down as I have switched to listening to (free) podcasts instead. One day I decided to dig into what I was truly paying for how often I used it.
When I first subscribed to Spotify, I was paying $5 per month at the reduced student price. I estimate that I probably used it an hour per day. This means I used it 30 hours per month, which came out to roughly 15 cents per hour of use. This was worth it to me.
Now, however, I pay the full $10/month since I am no longer a student, and I estimate I used it an hour per week. This brings my cost to $2.50 per hour of use. It still doesn’t break the bank, but it just wasn’t worth that much to me. I figured I could save the $120 per year and put that towards investments. If you figure you can earn 8% on your investments, I could make an additional $10 per year on that $120 by investing it. That’s a better return on my money than the value I was getting from an hour of ad-free music per week (I can still listen to music, just with ads). I canceled my membership a couple months ago.
I repeated a similar exercise for my Stitch Fix membership, which is a clothes-delivery system. I figured I was spending $200 a month for two outfits, but I would only wear each outfit about once or twice a month. That wasn’t worth what I was spending on them. Instead of receiving these shipments monthly, I opted to receive them about every 4 months. I don’t feel like I am missing out on anything.
I pay $50 a year for my meditation app, Balance. Initially, I was hesitant to spend any money at all on an app. However, I could not find a good free alternative, and I get really valuable benefits from meditating. I use this app daily for 10 minutes per day. This means I spend 14 cents per day on something I get immense benefit from. This is well worth it to me.
The Delay Test
I have one more way to decide whether you really value something enough to purchase it. This is simple, but effective: just delay the purchase for as long as you can.
This is something I do on a daily basis now, and it is very effective in lowering my monthly expenses. Every time I want to purchase something, I see how long I can go without it. Usually, I end up realizing I didn’t really need the item after all. My life is no worse off without purchasing that item, but I must save hundreds of dollars per year doing this.
I ask myself what the consequence is of waiting on the purchase, and if I can accept that. I have had my pair of tennis shoes for about 4 or 5 years now, and they are looking pretty dirty. In the past, I may just have gone out the next day and purchased a new pair. I would justify this by saying I “deserve” or “need” a new pair after waiting so long.
Now, with my focus on saving for a house down payment, I have really started scrutinizing every purchase. I decided to delay my purchase of tennis shoes. What is the consequence of waiting on this purchase? Virtually none. They are still functional and comfortable. If I wear a hole in them someday, I can go buy a new pair then. For now, I’m keeping them (and keeping the $100 in my pocket).
There’s also another benefit of this strategy. If you decide you really do want the item, delaying the purchase gives you more time to save up for it. Something I will do is add my “wants” to my Amazon cart, and then wait until the price drops significantly, or if I have enough credit card rewards points to purchase the item for “free.” I recently did this for a new pillow I wanted. I added it to my Amazon cart, and after a couple months it went on a special lightning sale, and I paid for the balance using credit card rewards. I feel like I got the pillow for free, and it was worth the wait.
Hopefully the above strategies have given you some new ways to think about your money and your time, and you can use them to make a few more cuts of unvalued spending from your budget!