The Hamilton Spectator

# The cost/value equation

## How many hours of your life would you exchange for an item?

- THE HAMILTON SPECTATOR FILE PHOTO

## Although I’m early in my career, I’m steadily investing for retirement. I want to enjoy life too and often work overtime to get the things I want without having to dip into my savings or incur any debt. But how much work is too much? How can I achieve the right balance between working hard to achieve my financial goals and spending money now to have a little fun?

I’m pleased to hear you’re making your financial future a priority — that’s a smart move. But there’s more to life than work. To strike the right balance between working for your future and having the time of your life now, you must calculate how much an item truly costs you.

There are different ways to determine the cost of something. First, simply look at the price tag. If something is priced at \$100, you will obviously have to exchange \$100 of your money for it. Then you have the thing and the seller has your money. That’s a fair trade because if you thought the price was too high, you wouldn’t have made the swap in the first place.

But there’s another cost involved for you, too. Consider how much of your time the item costs you. As American writer and philosophe­r Henry David Thoreau wrote in his book, “Walden,” “The cost of a thing is the amount of what I will call life which is required to be exchanged for it.” Ask yourself if you would gladly exchange hours of your life for a discretion­ary item. Because, when you work for a paycheque, that’s exactly what you are doing when you make a purchase.

Let’s suppose you earn \$40,000 per year. That’s about \$20 per hour. So, a \$100 item costs five hours of your time; that is, the \$100 price tag divided by your earnings of \$20 per hour equals five hours worth of work. (Granted, there are adjustment­s for CPP, EI and both federal and provincial income taxes, but play along with me for a moment.) The question is, would you feel the \$100 item is a fair trade for five hours of your life?

For example, let’s say you jog three times per week and a new pair of running shoes costs \$100. Buying the shoes would require five hours of your life. Because you enjoy running and taking care of your health and fitness, you might gladly make the exchange for the benefits you receive from the running shoes. Another individual may think that’s a foolish exchange, if they wouldn’t get the same use and benefits from the shoes.

The price of something is what you pay — in dollars and cents — to purchase it. But the value you receive from that purchase can be either tangible or intangible. What it’s worth to you may be an entirely different measure for someone else.

If your career advances and you are eventually earning, say, \$200,000 per year, those same \$100 shoes cost you only one hour of your life because you make about \$100 per hour. The higher your income, the less of your life needs to be exchanged for any item you wish to purchase. What you deem not to be a fair trade today may change as your income increases.

Instead of measuring your discretion­ary purchases strictly based on the price tag, you can now consider the cost/value equation to determine how much of your time and life you need to trade for them. The same math works for any item, such as a \$3,000 all-inclusive, weeklong Caribbean holiday or a brand-new \$75,000 vehicle.

With this new perspectiv­e, you can evaluate every purchase through the lens of hours of work, or time of your life, instead of just looking at the price tag.

THIE CONVERY, R.F.P., CFP, CIM, FMA, FCSI, IS A WEALTH ADVISOR IN DUNDAS, AND JUDICIOUSL­Y TRADES HOURS OF HER LIFE FOR DISCRETION­ARY PURCHASES. HER COLUMN APPEARS BI-WEEKLY IN THE HAMILTON SPECTATOR. THIE INVITES YOUR QUESTIONS AT THESPECMON­EY@GMAIL.COM OR BY VISITING CONVERYWEA­LTH.COM.