Elizabeth Kerr starts 2015 by asking what is your time really worth to you?

By Elizabeth Kerr

Happy New Year and welcome back.

I’m never one to mince around so lets get right back to where we left off, that’s why we are here together again isn’t it? Whilst everyone else is harping on about how to make 2015 your happiest/fittest/adventurous and stress free year, provided you say 30 positive affirmations in the mirror every day, I’m going to help you answer the following question so you can really start the year in your favour.

What is your time really worth?

Most people will have a vague idea of what they earn per hour, even if they are on a salary. To illustrate this week we are going to look at Katie, mid 20s, renting, single, no kids, works for a mid tier recruitment company in the city. She earns $80,000 per year (including commissions) and works a 40 hour week. She has no student loan and contributes 3% to her KiwiSaver In her mind she calculates the following equation:

$80k ÷ 52 weeks of the year ÷ 40 hours per week = $38.46 per hour

That is as far as she takes it and so she goes on to evaluate all of her spending decisions based on earning $38.46 per hour. But wait…. even you can see she has forgotten something. What about taxes and KiwiSaver? Yes you’re right. The calculation really needs to look like this :

$80k –(tax $17.320 + KiwiSaver $2400) = $60,280 ÷ 52 weeks ÷ 40 hours = $28.98

SO that looks a little better. Now she understands that the better number to be using is $28.98 to evaluate spending decisions.

But wait… it actually doesn’t end there. Unless she is some kind of robot that never eats and can sleep and shower at her workplace, then she has some non negotiable expenses which are just as mandatory to pay as is tax. So it would be smart to include this as well. Suddenly her hourly worth is not as shiny as she first thought.

Late last year I introduced you to my personal take on budgets and why they don’t work and what you need to do instead. (If you have been disciplined enough to sit down and write a traditional budget for this year that’s great but let's be honest, you’ve already broken it haven’t you?) Sticking to a traditional budget is like trying to be a vegan at McDonalds – bloody near impossible. If you’re familiar with my previous columns from late last year you’ll know my stance on budgets already.

In summary for today - in order to be financially successful you need only two things – a pot for your ‘non-negotiable’ expenses and a pot for everything else. This is based on the fact that there are some things in life which you have to spend on in order to keep yourself safe and healthy, and the rest is used for your thrills and giggles and comes down to personal choice aka Lifestyle Design.

All the money in your “everything else” list is what is holding you back from achieving your own money machine. This list is the one that holds the majority of your power because if you can design a lifestyle that will delete/reduce the optional expenses on this list and instead save that money then you have some real money magic going on. To see the original column on this click here.

Back to Katie – her weekly non-negotiable list looks something like this:

1. Rent – $160.00
2. Basic transport - $55.00.
3. 1 communication device $17.25
4. Insurances $15.00
5. Basic food $80.00

Total cost per week = $327.25

SO now the calculation looks like the following:

$80,000 – 19720 ÷ 52 weeks = 1159.23 per week – 327.25 = 831.98 ÷ $20.80 per hour.

This is how much Katie is really allowed to spend. See how easy it is to get distorted into thinking that you actually have a lot more money to play with than you think you do? In this instance Katie assumed she earned closer to $38 per hour but in reality it was actually closer to half that amount.

Show me the money

The real power comes when Katie is making purchasing decisions. Now that she knows the value of each hour of her work she can figure out if buying something is really worth that time.

As an example she is really enjoying the summer and thought it would be great to buy a BBQ for the flat. At $499 she thought she had found one she really liked. When taking into account her real hourly rate that BBQ worked out to cost her close to 24 hour of work. That involves getting up everyday, ironing clothes, scoffing breakfast, hurrying her hair, waiting for the bus, forgiving her colleagues, biting her tongue followed by eventually coming home exhausted for three whole days!! This is all because she wanted to have something to cook her bangers on for just several days of the year. Suddenly that BBQ just wasn’t worth it.

Its not like this all the time for Katie though. She has been reading my columns and is starting to design a lifestyle that reflects her personal values – not the ones dictated to her by clever advertising and peer pressure. If Katie felt her life was missing something really important by not having a BBQ then 3 days of working for one might have seemed a fair deal in her mind; and on another day her values might dictate that she baulk at the idea of paying $200 for a pair of shoes (1.2 days work).

This really is quite a personal calculation and so before you hand over your money next time ask yourself how many days work are you prepared to invest in owning that product.

You might like to affirm it to the mirror 30 times each morning just to be on the safe side. *wink*.