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How to Work out the Real Cost of Items aka What is Opportunity Cost?

How to Work out the Real Cost of Items aka What is Opportunity Cost?

How Many Hours do you Need to Work to pay for That?

When we think about how much something costs we typically look at the discount or ticket price.

Have you ever worked out how many hours you need to work to pay for something?

When you look at it this way, it changes how you think.

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What’s Your Real Hourly Wage?

You probably know your salary or hourly rate. What is it after tax?

You can find out with this calculator on the ATO website or check your payslip.

If you make $60,000 a year according to the simple ATO tax calculator you will pay around $11,047 in tax, leaving you with $48,953 in hand.

Your tax deductions will vary this amount but I’m trying to keep it simple here.

$48,953 works out to be $24.77 an hour if you work 38 hours a week.

What’s Your Cost of Living?

How much do you have left after your cost of living (COL)?

The cost of living is a hot topic this year since it has been rising at an astronomical rate and it is different from your budget.

While they are similar, they are not the same.

Your budget is working out how much you can afford to spend in different areas, planning to save, invest etc.

You can read more about how to budget here. Also, how to budget as a single mum/single income family here.

Cost of living is how much it costs you to live, and what you are spending and for many, that is not completely the same as what they budget for.

Add up all your expenses to work out how much it costs you to live.

Rent or mortgage, food, insurance, bills, everything you have to pay to live. Include an amount for savings as well!

How much is left? The amount left is your discretionary money, as in money you can spend if you want to (or invest).

For example, if you add up all your expenses and they cost $45,000 a year, you only have $3,953 left for discretionary expenses.

So how Much Does it Really Cost?

It’s up to you if you base things on the income before the cost of living or income after.

Income after is probably a lot lower, so you have to work a lot more.

Based on the after-tax income, before the cost of living, if you wanted a new iPhone, you’d have to work 65.76 hours to get it or nearly 2 weeks straight without other expenses.

But since we all have to live, if you’re using your wage after the cost of living, it would take you almost 6 months!

Now, you don’t have to base it on something so expensive.

You can use this trick for anything such as takeaway. For example, that $50 pizza delivery will cost you 2 hours of work.

This isn’t to say you can’t spend on those things. It simply means thinking about how much time and work are you willing to trade for the things you think you want.

Most of the time, the things we think we want now aren’t the things we really want in our lives.

Opportunity Cost

We’ve covered the financial cost but what else are these things costing you and are they worth it?

Only you can determine what is worth your time and money because it’s your life and you are the one living it.

Opportunity cost can look like missed investments, missed experiences and other missed opportunities.

It’s ok to spend on things that bring us joy, things we want to experience and things that matter to us.

You don’t have to go hard out with frugality, never spending anything so you can save, save, save or retire early or whatever.

I strongly believe life is meant to be lived while also planning and preparing for our futures.

When it comes to how much something costs, think about what you are giving up by buying that thing or spending money that way.

Would you rather have that pizza or would you rather pay your mortgage off sooner and be free?

What are your goals? What kind of lifestyle do you want to have?

Is the way you are spending your money bringing you closer to that or further away?

So what are things really worth to you? What do you really want in your life?

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