Stop Wasting Your Life – Change Your Mindset!

This post was inspired by a quote that my sister shared with me:

It is not that we have a short time to live, but that we waste a lot of it. Life is long enough, and a sufficiently generous amount has been given to us for the highest achievements if it were all well invested. But when it is wasted in heedless luxury and spent on no good activity, we are forced at last by death’s final constraint to realize that it has passed away before we knew it was passing. So it is: we are not given a short life but we make it short, and we are not ill-supplied but wasteful of it… Life is long if you know how to use it.            – Seneca

One of the core principles of Financial Independence is understanding the time for money trade-off. Most people understand that when we work, we trade our time for money.  What people sometimes fail to do, is to take the trade-off one step further to realize that when we buy things, we are indirectly trading time for things (since we trade our time for money and in turn use that money to buy things).   

Since we are indirectly trading time for things, we need to make sure the things that we buy are aligned with our values and actually make us happy (otherwise it is a waste of life). Many of us tend to buy aimlessly as soon as we enter the workforce – due to a “newfound financial freedom” from all that money flowing into our bank accounts every month, or worse yet, from credit cards. We can’t necessarily be blamed given that we are just doing what everyone else is doing. Buying a house / taking on a mortgage, buying a car / taking on a car loan – these have all become conventional in our consumer-driven society. We are encouraged by friends, family, and advertisers touting how much we “deserve it” after all the hard work. What we don’t realize is that when we bite of more than we can chew (buying beyond our means and taking on large amounts of debt), we are effectively trapping ourselves in our jobs because it has now become more necessary than ever to work to make the payments that we signed up for. While the instant gratification of buying something now is oh so tempting, the “future me” is the one who actually has to grind out the hours to pay for these things – plus interest!  

If we choose to save money, rather than trading it all for things, we are trading time for savings. The beauty of that savings is that it will allow us to work less in the future (gives us back the time spent initially – PLUS interest!). The principle of financial independence takes this to the next level where we ultimately save enough money so that we don’t have to grind at work if we choose so! The ultimate thing we buy through savings is our freedom.

This principle is so important that I even included it in my JBFI logo – you can see the person balancing the money and time trade-off as they climb their way to financial independence.  

What’s our real hourly wage?

One thing we can do to develop more consciousness about trading time for things is to calculate our “Real Hourly Wage”. This is another concept that was introduced in the brilliant book, “Your Money or Your Life”. Basically, we calculate what our hourly wage is so that we can calculate how many hours we have to work to buy something.

Let’s walk through an example together. Say you make $50,000 per year and you work 40 hours per week.  Easy:

  • $50,000 ÷ 52 weeks per year = ~$962 / week
  • $962 ÷ 40 hours per week = $24 / hour

This is how most people think about their hourly wage – on a gross dollars per hour basis only counting the hours that they are actually working. Let’s dig a bit deeper and make a couple of adjustments:

  • Numerator adjustments: deductions
    • You’ll notice that when you get your paycheque at the end of the pay period, you don’t get to keep every dollar you earned (in the example above, you don’t get $962 each week). Why? Deductions! In Canada, our employers are legally required by the government to withhold amounts for federal income tax, provincial income tax, Canada Pension Plan, and Employment Insurance premiums.
    • Using our example above, if you make $50,000 per year in Alberta, Canada, the following deductions apply:
      • ($4,917) Federal tax
      • ($2,740) Provincial tax
      • ($3,231) CPP / EI premiums 
    • So that $50,000 actually looks more like $39,112 in your pocket at the end of the year. It is important to think about “after tax” income since all of our purchases are made with post-tax dollars.  
  • Denominator adjustments: the extra time
    • One thing that many of us don’t think about is the additional time we need to spend in order to work (incremental to the hours we are officially “on the clock” and getting paid).  Examples include:
      • Getting ready before going to work
      • Commuting to and from work
      • Unwinding after getting home from work
    • Continuing our example above, let’s say that somebody spends 45 minutes to get ready for work, 30 minutes to commute to work, 30 minutes to commute home from work, and 45 minutes to change / unwind after work.  That is an additional 2.5 hours per day or 12.5 hours per week.  

Let’s re-run the math using our adjusted numbers:

  • $39,112 ÷ 52 weeks per year = ~$752 / week
  • $752 ÷ 52.5 hours per week = $14 / hour (that is a WHOPPING $10 / hour less than what we originally thought!)

I would encourage you all to run some calculations of your own to calculate what your real hourly wage is.  You can do the calculation manually or you can go to the “Your Money or Your Life” website and use their “Life Energy Calculator“.  

To estimate the amount of your deductions, you can just search “tax calculator Alberta Canada” or something similar depending on where you live. I use this one for Canada.

Once you calculate your real hourly wage, the idea is to think about your purchases in terms of the time spent working to earn the money to buy them, rather than just the dollars you part with to make the purchases.  Going further with the example above:

  • $6 fancy coffee = ~26 minutes of life energy
  • $150 dinner out for two = 10.7 hours of life energy 
  • $50,000 luxury car = 1.3 YEARS of life energy

Now I’m not saying that we all need to cut out the fancy coffee, the dinner out, and the nice car.  I just want us to understand the “time” for “things” trade-off that we make whenever we spend our money. A real foodie may be more than happy to trade 10.7 hours of their life for a nice meal, however, others may prefer to settle for cooking at home or a cheaper takeout alternative and save an entire day’s work. A car enthusiast may be happy to trade over a year of their life for a car since it genuinely gives them lasting happiness, however, others may prefer a lower cost used car and an earlier retirement date. These trade-offs are extremely personal. The purpose is not to judge or shame anyone for making purchases – as long as they are made consciously with the time for money trade-off in mind.  A good quote that is relevant here: 

Spend extravagantly on the things you love, and cut costs mercilessly on the things you don’t. – Ramit Sethi

This is the whole concept of “value-based spending” – consciously spending money on things that we love, and not unconsciously spending on things that don’t make you happy. We may even want to consider increasing spending on things that we truly value! The ultimate goal here is to maximize value and your life satisfaction for the time / resources you trade. 

 

3 thoughts on “Stop Wasting Your Life – Change Your Mindset!

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