Back from my vacation! It cost a lot, but was fun and a good chance to get away from everything and just relax. But now that I am back, I would touch on something which is common to everyone everyday.
When ever we buy something, we often just look at the price. If this shirt cost $30, then that is all there is to it. But there is actually a slightly different way to look at this which I have thought about before. So, today, I will explore that way. Please note of course that this is a purely monetary method of looking at the cost of an item, and does not factor in how much personal satisfaction you get from using it, which can’t really be counted by money.
This method is to take the cost, add any repair maintenance that will ever be incurred, and divide the total figure by the number of hours you are actually going to use this item. For items like food, we can put a more arbitrary 6 hours to it, since its likely that it would all be fully digested by then.
So, let’s take that $30 shirt again. If I estimate that I am going to wear it to work once every two weeks for the next 2 years before I get tired of it (or expand such that I can’t wear it anymore!). And I normally wear it for ten hours on the days I do wear it to work. Then it would work out to 30 divided by (28x2x10) hours or $0.053 per hour of use. Obviously, this is very little. It also means that if I go for a slightly more expensive $50 shirt, it would still work out to a relatively small amount of $0.089 per hour.
However, if it’s a $50 casual shirt which I bought, which I ended up wearing just once, and I never wear it again after that. Then, this shirt would have cost far more. Assuming I wear it for even a full $10 on that day. Then it would work out to $5 per hour. Notice how much more expensive this now becomes compared to even a $50 working shirt. So, if you are the type that loves to buy new clothes, and end up wearing them just once, or worse, never at all! Its definitely not a very good deal.
Let’s look at something more complicated, like a car. There are all sorts of makes but let’s not take something too expensive. So, a 1.5 litre sedan.
Downpayment - $18,000, assuming use full 10 years, so $1,800 per year.
Monthly car loan installment payment - $560 per month or 6720 per year.
Insurance - $1400 per year
Carpark – $65 per month, or $780 per year
Parking – $30 per month or $360 per year
Petrol – $300 per month or $3600 per year
Road tax – $700 per year
Maintenance – $250 per servicing, so $750 per year
Miscellaneous – $500 (accessories, car wash, replace parts).
Total – $16,110 per year.
Monthly car loan installment payment - $560 per month or 6720 per year.
Insurance - $1400 per year
Carpark – $65 per month, or $780 per year
Parking – $30 per month or $360 per year
Petrol – $300 per month or $3600 per year
Road tax – $700 per year
Maintenance – $250 per servicing, so $750 per year
Miscellaneous – $500 (accessories, car wash, replace parts).
Total – $16,110 per year.
Assuming you spend 1.5 hours on the road every day driving to work, etc. Then each year, you would spend 547.5 hours using your car. So, the cost per hour of a 1.5 litre car is ($16,110 divided by 547.5) = $29.42 per hour. Definitely not cheap. In comparision, most MRT trips won’t cost you over $2 per hour. And we are talking about a relatively cheap 1.5 litre car. Cars which are 1.8 litres and above are all much more expensive wither its maintenance, road tax, petrol, monthly payments. So, its all adds up.
We need to balance this with the amount we earn per hour as well. So, take your monthly pay, divide it by the number of hours you work per month. Let’s assume we work 8 hours a day, 20 days a month. (yes, some of us work longer, but let’s start with this). This works out to 160 hours per month. Here’s a table showing how much you earn per hour based on different salaries per month,
Monthly Salary | Amount earned per hour |
$2000 | $12.50 per hour |
$4000 | $25 per hour |
$6000 | $$37.5 per hour |
$10000 | $65.50 per hour |
$15000 | $93.75 per hour |
So, now that we have this, you can look back and assess how expensive are the things you are spending money on relative to your earning power. If something costs $1 to $5, its probably either very frequently used, or its cheap. If it costs $10 an hour, its still affordable, but don’t buy or use too much of these things. And if something costs $30 or $70 an hour, then you either use these only once in a long while (like an expensive trip), or you better think long and hard before buying it (like an expensive luxury sedan). And as can be seen, cars are expensive!
I will touch on more daily examples like food, entertainment, and a favorite topic currently for many – property in my next blog update.
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