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, then it cost you $2000 — if you get rid of it a month after the wedding, it cost you $2000. How does calling it $2000-per-day for the wedding or $0.27-per-day for holding onto it for twenty years change anything? It doesn’t change how much you have, how much you spend, or how much you save, so any value other than a single $2000 expense is meaningless.
Even following through the instructions shows that there’s nothing to it: After doing all that math and spreadsheets and amortization, the instructions on how to decide what to keep come down to recurring expenses, gray areas and sentimental value, which is exactly how you’d decide things if you hadn’t gone through this whole process.
The math error is that all of the math involved here is unnecessary.
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 you. For example, I ran the numbers on the various computers I’ve purchased over the years, and results were rather startling. Even accounting for “grey areas” such as how much I prefer certain machines, one came out dirt cheap and another came out very, very expensive. I hadn’t thought of this before.
This is actually very powerful when applied to thinks like clothing, in my opinion. I recently treated myself to a very expensive sweater. When I calculate how many times I expect to wear that sweater and compare it to the thrift-store sweater I’m wearing at this moment, there’s a startling difference. Obviously I’m aware that my frugal tendencies mean thrift store clothing is going to be much cheaper, but I hadn’t realized the difference was this pronounced. (The expensive sweater is on the order of 100x more expensive per use than the thrift-store sweater.)
So while I understand that this may seem pointless in some ways, I do think it can be a powerful tool, especially to those who’ve yet to practice some of this in their own lives.
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 the whole set-up for what I paid for it. The calculations above, however, let me see what the approximate cost per day of this learning experience was and give me a point of reference so that I can try to weigh future purchases of a similar nature against the cost of taking a class, for example, at my local arts center.
That $2000 wedding dress may be sunk costs and it may not matter whether you calculate the costs per day or not… But doing so across the duration of your first marriage may influence your choice of dress for wedding #2.
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 for every day I wear shoes.”
The problem is that it *doesn’t* cost $0.41 for every day you wear shoes. If all of your shoes were stolen today, *then* you could say that until now it cost you $0.41 per day to *own* shoes, but you still have the shoes and they still have service life remaining, so the cost of shoes per day will end up considerably less than $0.41. You don’t know how long they’ll last, so you can’t calculate their amortized cost (although you can estimate it by estimating how long they’ll last). But then, amortized cost and the per-day-so-far calculation proposed here are different numbers entirely.
The second issue is that the process confuses the cost of an item with its utility. While cost might come into an individual’s utility function for something, there’s a lot more involved, and it’s utility that lets you decide whether something’s worth buying or worth keeping. Cost might not come into the picture at all.
For example, I’m a musician, and among the instruments I own are a double bass and a toy accordion. I used to play the double bass semi-pro but burned out, and I play Irish music on the toy accordion, planning on getting a full-size button box later. The double bass cost hundreds of times what the accordion cost, but right now the accordion has far more utility to me than the bass.
The third issue is that this process is about deciding whether to *keep* things you already own, but it closely resembles the process you’d use to decide whether or not to buy something — but those processes don’t really have anything to do with each other. Your sweater example is an example of the latter — you were deciding whether or not the sweater was worth *buying* (even if you were doing it after you had bought it!). If you were to decide whether or not to get rid of either sweater, the cost per day so far of both wouldn’t necessarily come into it; you’d probably decide to keep both because you’d rather have two sweaters (= two sweaters have greater utility for you than one). With the process suggested here, you’d find that the cost-per-day of the new, expensive sweater is far higher than the cost-per-day of the older thrift sweater — and then what?
Finally, there’s a straightforward argument to absurdity that shows how this process doesn’t work: If you find that something’s cost per day is too high, then the only rational response is to *keep* that something — because the longer you keep it, the less it costs you per day!
Calculating cost per day of expected life of a potential purchase makes sense, but that’s as far as sense takes you. But that’s not what’s being proposed here: it’s a different number being calculated, that number doesn’t mean anything, and even a meaningful amortization figure isn’t sufficient to decide whether or not something is better kept or thrown away.
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 you to interesting conclusions about what you should keep, throw out and buy more or less of. I think its especially useful for clothes, which have a tendency to expand to fill all available space.
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 their per-use cost is to keep using them. That’s what sunk costs *are*, and that’s why you ignore sunk costs when determining utility.
(The usual sunk-cost example is the other way around: “I don’t like this shirt, but I spent a lot on it so I should wear it.”)
Your second comment is an example of using cost amortized over service life to decide whether to purchase something, which *is* a good idea — it’s just not the idea that the post is talking about. The post advocates using the cost per day *of ownership* to decide whether to *get rid* of something. So if you had a two-year-old laptop that cost $1000 (= $1.36 per day) and a week-old TV that cost $1000 (= $147 per day), how would you use those figures to decide if you should get rid of (not replace, discard) the TV or laptop?
Yes, calculate cost per day through something’s expected service life when deciding to make new purchases; no, don’t calculate cost per day already owned when deciding whether to throw things away.
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 keeping it. Sunk costs are a complicated issue and sometimes don’t make sense- but in this case- this analysis is only prudent when used before you purchase an item.
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 with shoes or sweaters. You can look at something like a fancy TV or dress the same way–and even doing cost-per-day calculations if they help (“every time I watch this TV, based on my habits and my knowledge that in five years I’ll want a different set, it’ll cost me $3–is there something I’d rather do on a budget of $3?”).
Go back to JD’s sweaters: imagine you’ve spent the time to do the spreadsheet mentioned in this exercise, and you realize you don’t NEED two sweaters. Well, unfortunately, you now own TWO thrift store sweaters, you’re probably not going to get much more at the thrift store selling the expensive one as you would the inexpensive one. If you sell the expensive one, your spreadsheet gets better, but you’re really no better off than if you sold the cheap one.
I can see this as being a good eye-opener on the how much junk you have and roughly what it has cost you, but even then you need to take the numbers with a grain of salt.
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 – its really about mindfulness, and how tracking your past spending/utility can lead you to better purchasing decisions in the future. I think what would be really valuable is to do this on a monthly/quarterly basis, and trend the costs-per-day for various categories. If you cost-per-day for shoes is trending downward, then you are using them and recouping utility & value. If the cost per day is staying flat, then you are either not using the item; and if its rising, you are spending more. The Wii is a great example — very high cost-per-day right when you get it, but it should trend downward sharply if you play it often. But that trend-line could jump back up if you are buying games / accessories. If the trend-line keeps going back up, that should be a clue to you that you are buying games/accessories, but not really getting the value out of them.
For something like books & DVDs, you could take a look over the previous year at your “consumption”, and decide if alternatives would be better. If you are spending a lot of money on books / DVDs, but only watching or reading them once, you cost-per-day will go up (a $20 movie watched once is a constant $20 cost-per-day). Then maybe you’ll find that switching to your library or Netflix may make sense! Or it may convince you to sell some of your DVDs/books, and recoup some of those sunk costs.
The other point about this, and I think its a good one, is having “clutter” is expensive, both economically & mentally. It costs you money to purchase “stuff”, and then you have to maintain “stuff” — dust the knick-knacks, wash the clothes, organize the DVDs, straighten up the bookshelf, etc. That maintenance “cost” is hard to quantify, so using a metric like cost-per-(usage)-day seems like an appropriate proxy, so when the emotional appeal of a potential purchase is high, your intellect has something to counter with to force you to decide if its really necessary.
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 this point). But he holds on to that beer thingy, because he thinks he’ll use it someday.
Not a big deal, since it was free, except now we’re getting ready to sell our house and so we’ll actually pay for a storage unit, into which will go things like the beer thingy. So, we’re paying to store something we’ll never use. Ooh, my hackles are up. My point is that, with some folks, all the numbers in the world don’t matter. Things sometimes have emotional value that is hard to overcome.
Anyway, I’m a huge fan of purging. I try to take a bag of stuff to the thrift store every month. Man, have we accumulated a lot of crap! This has really forced me to re-evaluate my spending. I add up how much the stuff I take to the thrift store cost the first time around, and we could probably have made a few extra mortgage payments this year.
Makes you stop and think when you’re at Target: do I really need another Buddha candleholder? Or is it a future thrift store donation?
Jen
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 $0.50 per month. Of course, I’d be paying for the square footage anyway, but wouldn’t it be better if that space was taken up by a work table so I could do my own small appliance repairs and save myself some money?
I hate clutter. One of my basement goals is to set up shelving so my Beautiful Things (much better than tchotskes) can be rotated in and out of the house instead of having them all in the living room at once.
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 avoid the too-common sunk cost problem.
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 they’re expensive, but they’re still crap taking space around the house, and you won’t pick up that extra bottle if you *know* you have 8 bottles at home.
I tend to think carefully about bigger purchases so that’s not too much of a problem, but smaller purchases do add up.
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.