Great Savings Tip #72 – Purge The Urge To Splurge

 

 

How hard is it to pass up an item you want at the store?

Got any money burning a hole in your pocket?

 

This post is part of our Great Savings Tip series, designed to help you find ways to spend less and save more. For more ideas see our Great Savings Tips page with a complete list of all our tips. Here is today’s tip you can put to work immediately:

 

To Buy Or Not To Buy

 

Tip #72) Purge the urge to splurge: When you’re out shopping, how do you decide whether or not you can really afford a particular item that catches your interest?  If you have enough money in your wallet, or enough available credit to make the purchase with a credit card, isn’t that good enough?

 

How will this purchase affect my other spending decisions?

When is the best time to buy?

Every Purchase Is A Choice About Lifestyle

 

Ultimately, every spending choice we make affects our overall wealth and it’s that wealth (or lack thereof) that sets certain limits on our choices about lifestyle. If we buy a $30,000 car and go into debt for it, that’s $30,000 plus interest that we won’t have to use for other things.  Is that bad?  Not necessarily, but the point is to make more conscious spending decisions to ensure that we can also make more conscious lifestyle decisions, and thus end up being, doing, and living the way we want.  For example, if I want to retire at age 65, yet spend all my disposable income in my thirties, forties and fifties, my ability to retire in comfort is going to be severely impacted. In fact, I may be unable to retire at all.

 

A Rule To Shop Buy

 

Sometimes, the best way to get a real sense of how important it is to purchase a particular item is to convert the cost of the item into the amount of time it takes to earn that much cash.  Though I’ve heard other names to describe this process, I call this my “Purge the Urge to Splurge Rule” for it often pushes my need to buy something right off the radar.

 

Cost divided by wages per hour equal total hours of required work.

Here's a handy formula that can help purge the urge to splurge.

The Math Is Easy

 

For example, say I earn $10 an hour at my job and I want to buy a new car that costs $30,000.  In this case, under the rule, we can take the price of the car or $30,000, and divide it by the $10 per hour I make.  The number we get—which comes out to 3000 in this case—is the number of hours I’ll have to work in total to pay the car off.  Whoa!  That’s a lot of hours.  Now, since I can only work, say, 8 hours consistently in any day, that means I’d have to work 3,000 hours divided by 8 hour per day or 375 days to pay for the car.  That’s more than a year.  The problem is I haven’t accounted for taxes, which might make that $10 more like $7 or $8.  In addition, I haven’t accounted for weekends when I can’t work, or for buying other items I need like food, clothing, utilities, or rent.  As mentioned earlier, there’s also the issue of interest to consider if I buy on credit, not to mention car licensing, insurance and gas.  In other words, I might need several years to come up with the 375 extra work days I’ll need to pay off the car.

 

When is a toy a necessity?

Do you always buy the latest toy?

Higher Wages = Less Time

 

Now let’s take another example: If I make $50 an hour, I’d only have to work $30,000 divided by $50 per hour or 600 hours for the same car.  In days, that works out to 600 hours divided by 8 hours per day or 75 days to work it off.  That’s a huge difference, and while I can’t say what’s more important for you, if I earned $10 an hour I would think very hard about finding a much cheaper car.  Now, for you, owning a particular car could be important for reasons that go beyond money—maybe you use the vehicle for work or need reliable transportation to get the kids to school.  That might justify buying it, but at least by going through the exercise, you can begin to get a better appreciation for how much of your time, energy and effort are going to be required to pay for it.

 

 

 

 

Ahh.  I do like my morning coffee.

What makes one cup of coffee worth $5 and another only $1?

Apply The Rule Anywhere

 

The Purge The Urge To Splurge Rule works well with much less expensive items, too.  For example, if you make $10 an hour and want to buy a $5 sandwich at the deli, by doing the math you’ll know that sandwich costs a half hour of your labor.  If that sounds reasonable, great.  If not, perhaps you could make your own lunch and come out ahead.  Or, say you wanted to go out to a restaurant for dinner and were looking at a couple of different choices.  Maybe you can get a pizza for $20 (or 2 hours of your time) or go to a steak house and end up with a $80 bill representing a whole day’s worth of work ($80/$10 per hour = 8 hours).  If it’s an anniversary or birthday, you might easily justify the more expensive meal, but if it’s a more casual thing (i.e. something you do regularly) it may not make a lot of sense to go to the steak house, especially if you haven’t thought about what you’ll have to give up down the road.

 

It’s Worth A Try

 

The next time you go shopping, try out the Purge The Urge To Splurge Rule and see if you change your mind about something you’d planned to buy.  If you do, please come back and tell us about your experience.

 

Keep In Touch

 

If you missed any of our tips you can find them by clicking on the “Zero-Based Living” drop down menu at the top of this page. You can also register with our site and we’ll send you an automatic notice for all our new posts. Thanks for stopping by and have a great day!

 

For the complete list of all our Great Savings Tips click here.

 

For a great book that takes this basic concept much further read, “Your Money Or Your Life” by Joe Dominguez ,Vicki Robin and Monique Tilford.

 

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