The Single Equation That Tells You How Much Everything Really Costs

When people talk about “value”, they’re all measuring from different places. Take a Ferrari, a billionaire will argue that such a piece of precision engineering is a steal at the price whereas someone like me would just say “it’s too expensive”.

We’re both right and we’re both wrong. So, how do we bridge the gap and find a universal measure of value that we can all use to talk about value more usefully?

Time Equals Money

If you have a job then you have a salary. You sell your life by the hour. So, it’s a good idea to find out what that hour is worth.

Firstly, take your salary after taxes and any other deductions.

So, a $50,000 a year salary might be $35,000 by the time it hits your bank account. That’s your “real salary”. You may benefit from taxes, but you don’t get to choose how they get spent either.  You also don’t get to decide not to pay them.

Now that you have that figure of a “real salary”. Divide it by 50 (working weeks) and then again by 40 (working hours).

So, our $35,000 real salary is $700 when divided by 50 and then $17.50 when divided again by 40.

That’s means if you earn $50,000 a year and you have $35,000 left after deductions – your time is worth $17.50 an hour.

You give up an hour of your life to make $17.50.

Applying That Hourly Rate To The Real World

Let’s say that you see a beautiful coat for $700 in the mall.

To work out the number of hours you must work to buy that coat – divide the price tag by your hourly rate.

This is $700/$17.50. You must work 40 hours – a full week – to pay for this coat.

Now, you can decide whether the cost is worth it to you or not.

You can also discuss it rationally with anyone else and they can use their own numbers to make similar judgments.

Try it for a week, you’ll be shocked at how much of your life you waste working for things you don’t need.

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