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How Much Does Frivolous Spending Cost You?

Taco Winter

Have you ever stood behind someone in line at the convenience store and watched them pay hard-earned money for a lottery ticket? Or walked through a busy casino, with people at the machines literally giving their money to the house all in the name of a little fun? Or what about watching someone inhale their future retirement through the ashes of a nasty smoking habit?

We All Only have so Much Time

First things first. We all only have so much time. I’m sure you’ve probably heard that before, but have you really broken it down and looked at how little it really is?

That’s about how many days most of us will have on this Earth, based on an 80-year lifespan. The first 6,500 or so will be spent in mandatory education, while the last 1,800 or so (or approximately five years) will probably be hampered by the problems of old age. Now add in the approximately one-third of our lives that we will spend asleep, and the other one-third that we spend at work, and precious little time is left to enjoy.

What is Your Time Worth?

If you’re paid by the hour, this is obviously a pretty straightforward calculation. And those paid on salary can simply convert their wage into an hourly number without too much trouble. This is the amount of money that we willingly trade those precious few hours of our lives for. When I look at it like that, it changes my perspective. If I saved those precious few dollars each week that end up going to mindless purchases, how many more days of freedom could I buy before old age sets in?

Working 29 Hours for a Pair of Jeans?

Here’s where we have to do a little math, but it’s not as complex as you might think. Applying some reasonable assumptions about long-term rates of return (10%) and inflation (3%) and a 30-year compounding period, I get a ratio of $71.89 for every $10 spent today and not invested.

So, let’s say you want a new pair of jeans that you don’t really need, and they cost $100. That’s $718.90 of retirement nest egg down the drain, in today’s dollars (e.g. after accounting for inflation). If I make $25.00 per hour, that’s about 29 hours of work that I just exchanged for a pair of jeans. Or to put it another way, if I had saved that $100 instead (again, assuming the long-term rates of return and inflation) I would be financially independent 29 work-hours earlier than I would otherwise (almost a whole work week!).

Now, sometimes you need to buy a pair of jeans. I’m not trying to beat anyone up here; that’s not my point. In fact, I just bought a new pair of jeans, and don’t feel guilty at all–I needed them. But the point is that by breaking the cost of something down into hours of your life, it’s easy to put into perspective the trade-off you make with frivolous purchases.

The Younger You are, the More Expensive Your Time

One of the key variables in this little formula is the compounding period, or the number of years from your current age until retirement. For someone who is younger than I am–I’m in my mid-30s–things start to get really interesting. If we assume a 40-year compounding period, all of a sudden the cost of $100 spent is $1,387.40, not $718.90.

In addition, we might want to assume a lower hourly rate, because obviously the younger you are the less you generally earn. So if we assume this person makes $15.00 per hour instead of my arbitrary example rate of $25.00, that’s 92 precious hours exchanged for a $100 piece of cloth that will probably go out of style in a few years.

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