Why live a life of frugality?

23 Jan

Why live a life of frugality?

Ok, 23 days down and only 2977 days to go on our 3000 day journey to financial independence, as promised this post is about living frugally and more importantly the WHY behind this way of living.

To be clear, when I talk of living frugally, I don’t mean selling everything and going to live in a tent in the bush somewhere (however, that may work for some), I am purely talking about living within your means, having money left over to save/invest each month, not spending mindlessly and learning to find value in each purchase. We live in a world with modern conveniences and luxuries that we are lucky to have, but these come with inherent costs. For Mrs 3000 and I, being frugal is not forgoing all conveniences and luxuries, but it is about being mindful of each purchase and placing a very high value on each dollar spent. It is important to remember that each dollar you spend represents time you have worked, time you will have to keep working, time away from your kids and time in the job you hate.

One of the most life changing things I ever read was from the book – Your Money or Your Life: https://vickirobin.com/books/summary-of-your-money-or-your-life/. The concept was working out how much money you are trading your life energy (time) for? For me, this was mind-blowing and has made such a dramatic impact on my purchasing decisions. The concept was so simple….why did I not know this stuff in my 20s when I was buying rounds of drinks at the bar!!

So, how much are you trading your life energy for? Establish the actual cost in time and money required to maintain your job, and compute your real hourly wage.

Here are the instructions:

  • Deduct from your weekly income the costs of getting to and from work; the cost of the clothes you buy to wear at work; the extra cost of at-work meals; the amount spent to relax and wind down after the stress of a work day; job-related illness; and all other expenses associated with maintaining you on the job.
  • Add to your work week the hours spent in preparing yourself for work, travel to and from work, the time taken to wind down at home after work, recreation need after work as a means of winding down, shopping to make you feel better since your job feels lousy, and all other hours linked with maintaining your job.
  • Divide the new, reduced weekly dollar figure by the new, increased weekly hour figure; this is your real hourly wage.
  • You are in the business of selling the most precious resource in existence — your life energy. You had better know how much you are selling it for.
  • The number that results from this step — your real hourly wage — will become a vital ingredient in transforming your relationship with money.

Here is an example (per week estimates):

Income: $1,500 income - $50 commute - $10 clothes - $50 meals - $50 relax - $40 shopping - $20 other = $1,280 remaining before tax

Hours: 40 hours working + 10 hours commuting + 2.5 hours preparation + 2.5 hours winding down = 55 hours

Your real hourly wage: $1,280.00 / 55 hours = $23.27 per hour or each dollar is worth roughly 2.5 minutes of your time. However, I like to take this one step further and use after tax figures, so after tax $1,280 is actually $1,000 / 55 hours = $18.18 per hour or each dollar is worth roughly 3.3 minutes of your time.  

Do this calculation yourself and remember this figure…embed it in your brain…every purchase from now on you should consider this number. 

For Mrs 3000 and I, our number is roughly 2 minutes for each dollar. I can’t get this number out of my head, which sounds annoying but in fact it has been a very powerful tool when making a purchasing decision. I don’t think, is this coffee worth $4? I think is this $4 coffee worth 8 minutes of my life?

So stop thinking about purchases in $ terms, think about them in terms of your life energy or minutes of life or minutes of freedom. This will naturally lead to a more frugal lifestyle as your time is your most valuable resource and guess what.....it is also finite resource!!

Here is some recommended reading:

As per the above post, Your Money or Your Life: https://vickirobin.com/books/summary-of-your-money-or-your-life/

Cheers, Mr 3000

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