If you want to take control of your finances then one things you need to do is spend wisely.
However, trying to put this theory into practice can appear rather complicated as you research the best deals when out shopping. Controlling your finances does not have to be a daunting task and some of the best advice can also be the simplest.
Here is a very simple tip to help you work out the value of everything that may help you control your spending and enjoy life a bit more.
Work out the cost of every purchase in hours worked
When tempted to purchase an item we tend to be guided by whether we can afford it or not. Which often means do we have enough money in the bank to buy the item and still last until payday, rather than whether the item is good value or not.
Now here is the trick
Every time you are tempted to buy anything calculate the cost in hours you need to work to pay for it. So if a meal out costs £40 then it will require 4 hours work (i.e. half a day) if you earn the equivalent of £10 net of tax an hour. Similarly if you see a £120 dress you like it will require 12 hours work to earn it. Which begs the question is it really worth it?
Of course you need to work out your net hourly rate of pay, which I explain how to do so at the bottom of this article.
The happiness effect
One positive side effect of using this technique is that it will make you less materialistic. Not only will you see the real value in what you buy but you will start to favour experiences over objects. Which has more value an evening out with friends or a dress, both of which cost the same in pounds and pence? It's no contest.
Of course if you earn a lot of money you might argue that this technique suggests that most purchases would be deemed to be of little value. However, that is reality. But spending money on experiences will maintain its emotional value to you. The result is that you will likely spend more money on experiences and hopefully become more enriched for it.
How to work out how much money you receive for each hour worked
- Find your last payslip
- Look for your net pay figure on the payslip
- Work out how many hours you worked in the week/month to earn that money
- Divide your net pay by the number of hours worked
- This figure is the amount of money you receive for every hour worked
For example a person earning £500 a week for a 40 hour week on a normal tax code will have net pay of £396.82. The amount of money received for every hour worked will therefore be £10.
Looking for a financial adviser near you?
Do you need financial advice? An independent financial adviser can show you how to make the most
of your money. Find your nearest qualified and regulated adviser using this VouchedFor search tool.
Alternatively, Hargreaves Lansdown, one of the UK’s largest firms providing restricted financial advice, is offering a £200 John Lewis voucher* to new clients.