Monday, January 29, 2007

Your Personal Time Value of Money

I recently did a calculation of how much money I earn after tax for every minute I work (salary - tax & other deductions + RRSP tax credits) at taxtips.ca to find I earn about $0.37/minute. This little exercise I found very useful to determine how much time I have to work in order to buy something.

For example, a cup of coffee for $1.47 costs me almost 4 minutes (1.47/0.37 = 3.97), and a cookbook on sale for $10.60 costs me about 29 minutes. While a 32 LCD wide screen TV for $1445 costs me about 65 hours (1445/0.37 = 3905 minutes).

So next time you to buy something ask yourself this: am I getting more joy/usefulness out this purchase than it costs me in time to buy it?

So in the case of the cup of coffee if you drink it during a great conversation for 10 minutes, it might be worth the 4 minutes of work. Yet if you drink it while on your way to work for 2 minutes and then let it go cold, it would be a bad deal since you still have to work for 4 minutes for something that gave you less than 2 minutes of happiness (if that long).

The point of the exercise is to check if your really enjoying or using your purchase. If your not really enjoying or using it, why are you even buying it? For example, wasting power with the old 60 W light bulbs seems pointless to me. I need light and the cheaper the better. I don't enjoy my power bill, so why not buy a CFL that will last at least five times longer and use about 1/6 the power. Yes it costs more up front, but the prices have been dropping and my last set of bulbs cost me about $3 or 8 minutes each for something I will save money with for over five years.

This is just one option, the reality is you need something to slow you down for just a second or two and the question "Am I going to make time (money) or joy off this purchase?"

2 comments:

Anonymous said...

Great way to view things IMHO. What was the exact taxtips.ca link?

Canadian Dream said...

Anon,

I didn't include the exact link because your tax total will vary from province to province. Go the main site and then pick your province personal income tax rate page. Then use the online calculator to find your after tax yearly total pay. The divide by 52 weeks and then # hours you work in a week and finally divide by 60. That will then be your per minute pay.

CD