People often think in terms of their hourly earnings. While standing at a clothing rack in a store in a shopping mall, they see something they like, and although they hadn’t come to buy anything, this particular sweater is just too cute to pass up. The fall fashion line has just come out and it’s time to think about the cooler weather anyhow. Besides, it’s only $60 so that’s like…less than four hours work. There lies a big misconception about our earnings.
First of all, we need to stop thinking in terms of gross income (our hourly wage) and instead realize our net income, or what we actually take home. In Canada, someone earning $15 an hour, like my friend Carl only takes home $12.50 after taxes and other deductions have been taken. So, in a month Carl actually sees $2,125 come into his bank account.
Secondly, if we identify Carl's actual needs, those expenses that are absolutely necessary to live a safe and healthy life, we will have a better understanding of his actual earnings. For example, he could live with room mates in a cheap neighborhood and probably only spend $400 a month on rent, including utilities. If he eats at home, he can easily live on $10 a day for food, or $300 a month. And of course he has asthma and some skin condition so lets tack on another $100 for medication and ointments. That's $800 total. His 'profit' could be $1,325. But of course he is commited to more than just that because he has a cell phone contract ($75/month) and he lives alone on a year-long lease ($750). His needs (in the short term at least, as long as he's legally bound to the contract and lease) is $1225. This means that Carl's spending money is just $900 a month. Or, in more relative terms, $5.29 an hour. That sweater he's looking at isn't just four hours work, it's closer to twelve hours work!
We need to realize that every unecessary purchase we make (and we make a lot of them!) costs us much more time than we realize.
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