Elizabeth has a lifehack that allows her to manage both money and space. She writes: “This helped me curb my lifestyle choices when I was in high school and first on my own.” Here is her guest entry.
Possessions scare me. My parents are pack-rats, and their house is full of things that have no right to be there. Desk space is taken up by dirty coffee cups, stacks of notebooks, and priceless, irreplaceable piles of loose paper. My Mom's office, the biggest room in the house, has three narrow pathways: one to her computer, one to her bathroom, and one to her closet (which will not open because there is too much stuff inside and outside of it). Scary!
When I became a college student with a (very small) room of my own, I learned how rewarding it is to be in control of your living space, and how important thriftiness is on a student-sized budget. This is how I came up with the following method of worth assessment: the cost-per-day expense chart. How much does something you own cost per day you use it? And how long until your assets break even?
I use this technique to get rid of excess stuff, and to figure out how to be economical in possession and in purchase. This is also a good way to figure out what you're spending money on, and to find alternatives — say, if you buy a lot of books, getting a library card, or if you buy a lot of music, start working at a radio station.
Preparation
You will need:
- a few pieces of paper
- a pencil
- a calculator
- two highlighters
You may also want:
- a pen — I like to use two colored pens, red and black: black for numbers, red for comments or uncertain variables
- a ruler to mark off columns
- a computer with a spreadsheet program
I should preface this by saying that I am not a math genius. The purpose of this is to look at how much your lifestyle costs, not to make you feel insecure about forgetting sixth-grade algebra. All of the math herein is multiplication and division; you don't have to solve for x, and you can use a calculator.
List Everything You Own and How Much it Cost
List everything. Don't worry about order for now. You might want to look up every receipt, but that's not necessary — I'd only recommend doing that for large purchases, such as a big-screen TV, a computer, or a boat. Exclude gifts you've received, since they cost nothing. If this seems daunting, start by writing the cost for each category of possession: clothes, books, furniture, etc. For example, if you have three pairs of shoes you wear in rotation that cost $45, $60 and $50, then group them, writing $150 under shoes.
List Everything You Pay for Monthly
List your mortgage, rent, student loans, insurance, cable, phone, internet, repairs, everything you pay that has an intangible attached to it.
Organize this Data
Make a table, either on the computer or on paper. You need four columns. The first three are the name of the item(s), cost and number of days used since it was bought. The fourth is “cost per day,” which we'll get to in a second.
Part of J.D.'s cost-per-day table
After you've put in both the name and how much everything costs, estimate how many days out of the year you use it. If it's something like clothes or shoes, chances are you use both every day of the year. If it's a television sitting in your basement, chances are you use it zero days out of the year. If you're really not sure, think of how many days you use the object per month and then multiply that by twelve.
Here's a quick reference:
- 73 days = 5 days/month
- 84 days = 7 days/month
- 170 days = 2 weeks/month
- 252 days = 3 weeks/month
Calculate How Much Each Possession Costs Per Day of Use
This means you divide the cost by the number of days it's been used in the last year. For example, I paid $150 for three pairs of shoes which I bought a year ago today. I wear one pair every day, so I punch in the following on my calculator:
$150 / 365 = $0.41095, or $0.41 for every day I wear shoes.
You can also calculate how much it'll cost if you own or have owned something for over a year. For an $150 purchase which I use every day, the cost after a year and a half is $0.27; after 730 days of usage (two years) the cost is $0.21. If I own these very industrious shoes (or something of equal value) for a grandfantacular ten years and use them every day, then it only costs me $0.04 per day used. Do this first for all the straightforward purchases, such as shoes, clothes, furniture, dish sets, etc. Then proceed to the next step, which is to calculate harder sets.
Calculate Monthly Expenses
Tabulate regular expenses, such as rent, mortgage, utilities, DSL. This is the simplest part, because you multiply the monthly amount by 12 and divide it by 365. My utilities are $35/month for DSL, heating and electricity. $35 x 12 = $420. Since I use DSL, heating and electricity 365 days per year, I'm paying $1.15 per day for all three.
Group Open-Ended Items
Some possessions, such as media, are trickier to calculate. A book you buy might sit on your shelf for two years, only to be devoured in a week and cast aside for another two. The simplest way to calculate media expenses is to collate everything you've spent for that year, and how much time you spend on the activity. If you buy $200 worth of books/records/DVDs but spend 200 days out of the year (about two weeks out of every month) using that media, then you're only spending $1 a day. This gives you a general idea of how cost-effective your consumption is, and gives you an idea if you can save money.
Take a Break
Seriously. Take an hour to do something that doesn't involve math or thinking about finances. Go hiking, running, etc. But come back. If you're like me and tend to take more breaks than needed, set a timer for yourself and stick to it.
Decide What to Get Rid of
This is the hard part. First, print a few copies of your chart. Now you're ready to use your highlighters. One color indicates things that you need or must pay: insurance, rent, shoes, etc. The other color indicates things that have sentimental value: a first-edition book signed by the author, a stuffed animal, a wedding dress, et cetera. There's always some grey area, and it raises some interesting questions. Do you really need cable? What about a television in the first place? The wedding dress is nice, but is it just taking up closet space? Are you really going to watch all those movies again and again?
This is why you have multiple copies of your chart. After you highlight everything you need/want, do it again and check the differences. You'll have a better idea of what you can get rid of, and also how much less you can spend.
Conclusion
If you like this method, or if have math errors to point out, let me know. Feel free to ask me any questions (or to vituperate about how starting this was the worst experience of your life).
Elizabeth is a student and freelancer in Berkeley, California. She edits a zine, Zotapine, and does programming for KALX radio, including news features and anchoring.
You need to start using the Wii more 🙂
You can start your own Wii Fitness And Weight Loss Plan like this guy did.
Okay that was a crappy link.
Here’s a better one.
I don’t get this at all. Ok, for a car I understand that there are maintenance costs, and it’s worth deciding if the maintenance costs are worth the value that the car provides, but everything that you’ve bought that *doesn’t* have maintenance costs are sunk costs. You can’t get that money back by getting rid of it, so what you spent on it is irrelevant to whether or not you want to keep it. Take the wedding dress as an example. You spend $2000 on a wedding dress which you wear once. If you hold onto it for twenty years,… Read more »
Rich, I can understand your befuddlement, but I think the point of this exercise is to encourage mindfulness. (That’s the point I took away, anyhow.) You’re right that these are “sunk costs”, and that there are a lot of intangibles involved, but I think that Elizabeth is right that many people — especially many young people — never stop to think of their purchases in this sort of way. Mindfulness is an excellent tool to reduce spending, and cost-per-day expense chart is a sort of forced mindfulness: by doing the exercise, you’re forced to see just how much things cost… Read more »
To kind of piggyback on Rich’s reply, I think this article would be even better when tied together with Dominguez and Rubin’s whole “Life Energy” theory.
You figure out how much you REALLY make an hour (usually a lot less than your stated wage) and then divide that number into a planned purchase and then you see just how many hours you’re going to have to work, give away your life enegy, to get that new gazingus pin.
To respond to Rich, I think that where these calculations come in handy is when the time comes to replace something or to purchase a similar item… For example, I’m an artist. 4 years ago I bought a dual fuel torch because I wanted to get into lampworking and found a really good deal on a lampworking set-up. The torch, and all of it’s associated bits sat on my living room floor for 2 years because I 1.) didn’t have anywhere to put it and 2.) didn’t know how to use it… In the end, I found someone to buy… Read more »
JD – There’s three separate issues that make it so this process doesn’t provide meaningful information. The process is really close to processes that *do* provide meaningful information, so it’s easy to confuse one for the other. I think that’s what happened in your sweater example, in fact, which I’ll get to in a moment. The first issue is that the actual calculations are bogus. Dividing the cost of something by the amount of time you’ve had it doesn’t give you an number that means anything. Looking at the shoe example, for instance: “$150 / 365 = $0.41095, or $0.41… Read more »
I think this is a useful idea. Something that is pretty expensive on a per use basis, may not be worth keeping. Its using up valuable real estate in your home. If you have (like me) a bunch of books, working out that in actual fact those books cost £2 (=$3.40) per day when I buy them (over a year) may cause me to realise that I don’t get good value out of them and maybe I should get rid of some and just go to the library. Its another way of quantifying and comparing your posessions and may lead… Read more »
Also, rich said:
‘Calculating cost per day of expected life of a potential purchase makes sense, but that’s as far as sense takes you.’
It may be useful to have something to compare that to. Like a new lcd tv will cost me £0.54 (=$0.93) over a year (and will last longer), which can be compared to the cost of my laptop over 3 years at £0.73 (=$1.25). This surprised me as I think of a tv as more frivolous than the laptop. But maybe thats not the case.
I’m glad Elizabeth shared this…very interesting. Good article!
Angela — Re your first comment, you’re not using cost per day when you calculate whether or not to keep clothes. Cost per day is higher for things you haven’t had as long — that is, if you need more closet space, you’ll throw out your newer things first. But that’s not what you do: you throw out the stuff that you don’t want to wear anymore, stuff for which the closet space is of more utility to you than the clothing. Your clothes aren’t expensive on a per-use basis because their cost is sunk. The only way to reduce… Read more »
I’m with Rich- it doesn’t make sense. If anything- it argues for keeping your more ‘costly’ items. If you’re trying to figure out the daily cost of you owning that item then you need to figure in all costs associated with said item- for example- how much space does it take up? Do you pay for that space? Does it take any time to maintain? What is the opportunity cost of the item and do you gain anything from getting rid of it. You certainly wouldn’t gain $3 from getting rid of your wii- though you aren’t losing $3 by… Read more »
Rich has a good point. This sort of calculation has merit before you purchase something, but little afterwards. Another extreme example: Let’s say you live in a part of the world with unreliable power, so you buy a backup generator. You use it three days a year, and your cost per use is therefore horrendous. Should you get rid of it? Well, sure, what’s three days, right? Other than your tropical fish are gonna croak or your clients will abandon you. Now, weighing the cost beforehand to determine which generator you’re going to buy is smart, just as it is… Read more »
Rich — I think the point you are missing is its not how long you’ve had it, but how long you’ve *used* it. I think that’s a key difference, and yes, the longer you’ve had something the more chance you have had to use it. But take the wedding dress example. If you’ve owned it 1 day or 2 years, if you’ve only worn it one day, your cost-per-day is still $2000. Shoes are a different matter – you probably wear shoes every day, so the cost-per-day will decrease as time goes on. I agree with the other comments –… Read more »
Holy cow! Where do you live that utilities only cost $35 a month, including DSL? Can I come live with you? I like the general premise here, though it seems like too much work for me. My parents are packrats, too, so I definitely identify with that. My husband can be a bit one, as well, so that leads to some *interesting* household discussions. For example, a friend gave us a homemade thingajiggy for making beer. My husband has never once used this (we have two small kids, and it’s makes a lot more sense to just buy beer at… Read more »
I agree with Rich on this, it doesn’t really make any sense.
Rich,
This article has an html markup issue (I’m thinking the chart) that doesn’t translate well to livejournal.
Laz.
I gotta go with Rich et al on this one. I didn’t see anything useful generated by the calculations. If the point was to promote mindfulness, then the poster should have said that instead of making us guess. >>That maintenance “cost” is hard to quantify, Drak, one maintenance cost we can look at is cost per square foot. I pay $950 per month for my 950 square foot house, and for the semi-unfinished basement beneath it. Let’s assume the basement is also 950 sq ft. So, the 2 sq ft box containing ALL of ST:NG on video tape takes up… Read more »
A much more practical approach would be to scrap through the things that collect dust and estimate the possibility of you ever using them in future. You usually do know what collects dust and don’t need math to figure that out!
Interesting post, and it’s a good idea to think in terms of “use ratios”, which is why investing in good pans/knives can be a great idea.
Pet peeve: data is a plural word. It’s “Organize these data” not “Organize this data”. I can’t believe how many places I’ve seen this done lately. Captain data to the rescue 😉
Not all the costs listed will be sunk costs. The Nintendo Wii, for example, has a market value equal or equivalent to it’s purchase cost, and it can easily be sold on ebay or craigslist (depeneding on your location).
I agree with Rich and others that this approach doesn’t make sense. It’s easy to see how the calculations can lead you to precisely the wrong decisions in some cases. And really, does it require doing a bunch of bogus math to be mindful? I shudder to think of the opportunity costs of undertaking this involved process (are you really going to try to figure out how much you spent on everything you own? how could you possibly have recall for all that stuff). The time may be better spent with a basic microeconomics book so as to learn to… Read more »
I agree with the need to get rid of things and be more mindful of new purchases, but this math is definitely, for want of a better word, WHACK! My procedure to get rid of things, is to every so often collect all things of the same type that I own, like t-shirts, or hair product or whatever, and count them. That’s usually enough to scare me into donating what I can and thinking hard about buying anything of that type for a while. It’s pretty horrifying to realize you have 8 bottles of conditioner around your bathroom. Not that… Read more »
I guess the article does throw a light on the cost per day aspect, but does not help one to decide really to discard something or buy another thing. One usually goes by gut feeling when it comes to discard/buy option. Most of the time the gut feeling works. Otherwise you inherently know in your hearts of hearts whether to discard/retain.
I guess its useful to an extent but really does not make any sense.
It sounds like you’re creating problems yourself by trying to solve this issue instead of looking at why there is a problem in the first place. But still great job and point of view.
“Can’t see the forest for the trees here” observations. I recently did a quick calculation on some shirts I have. What I quickly figured was the monitary value, wether per year / month / day, kind of get messy with the Quality Value (I put / place) per item, the amount of times I will wear them in reality, and then last but not least Replacement Value – not only purchase values. When you start factorizing in your own scaling system into the money values, you get a whole different picture. Some shoes you will wear less because they are… Read more »