How You Can Save Money From Simply Changing Your Perspective
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There are a countless number of articles, books, videos and other media with methods and tips on how to save money. I am not saying all of those resources are not correct or helpful, because many are, I put into practice many of them. This method, the WYHTE Phenomenon, is something that takes place before any other tip or method would be put into place, and that is your view on how YOUR money is spent and earned.
While reading the book Your Complete Guide to Money Happiness by Henry S, Brock, I knew I had to pass along this fantastic perspective on money.
WYHTE is an acronym that stands for What You Have To Earn. What this concept tries to teach us is how much money we really have to earn for something we want to buy. This Phenomenon is best understood with an example.
Normally, and myself included, when we see the price of something, we tend to equate it to how much we would have to work, or how much money we would have to make in order to purchase that item. As an example, let’s say I earn $25 an hour, and I want to purchase a pair of shoes for $100. Now it does not take a CPA to tell me I would need to work 4 hours to make $100 and pay for the pair of shoes.
$25 per hour x 4 hours worked = $100 earned
I think we can all agree on the math, and that it makes sense.
But I know some of you are saying, “wait Ben, I know that even though you may earn $25 per hour, you do not get to take all of that home, you have to pay taxes!" (for the sake of the example, I am not including any pre tax deductions from a paycheck such as insurance, 401k and the like) To that statement I would agree with you. Now, for the sake of simplicity, say I am in the 25% tax bracket, now how much would I have to earn, to pay for that same pair of shoes?
Many, again including myself initially would have said, that is easy, you would have to earn $125, or work 5 hours. Does the math work out?
$25 per hour x 5 hours worked= $125 earned x .75(what I get after 25% taxes taken out) = $93.75 take home after taxes.
As you can see I am still short for my $100 pair of shoes. Show how much would I need to earn, or even how many hours would I need to work to purchase my $100 shoes.
$25 per hour x ? hours worked = ? earned x .75 = $100 take home after taxes
$25 per hour x 5.33 hours worked = $133 x .75 = $100 take home after taxes
As you can see, in order to pay for those $100 pair of shoes, I would have to work for 5.33 hours and earn $133 to do it. That is the WYHTE phenomenon in action!
Ok cool numbers trick Ben, how does this save me money?
Now keep in mind 25% tax bracket is low, most of us have a total marginal tax rate (Federal, State, and FICA taxes combined) higher than that, and the more you make, the higher your tax rate.
This Phenomenon effects us on a daily basis for every purchase we make, and you can either have it work for or against you.
First, when keeping this in mind, you instantly begin to ask yourself if something is worth, not what the price is, but what you REALLY have to earn in order to buy it. You will begin to discern your purchases in a different light, which can help you save money instantly.
Sales are another way applying the WYHTE phenomenon. You make not think it is worth it to drive a little further for a sale, or that $10 is not much to save for a sale. But when you apply what you have learned, your dollars go further, since you are not saving the amount of money, but the amount of time it took you to earn enough for that $10 in savings.
The biggest help this can be is determining the old dilemma of doing it yourself or hiring someone to do it. The book has a great example I will outline.
An attorney charges $100 an hour for his service, and he wants to finish his basement, which would take about 25 hours to complete. He has the skill to complete the task, but knows he can make $2,500 in 25 hours, or he has a quote from someone to complete the job for $2,000. Seems like a no brainer to hire the contractor, save $500 right? Let’s find out.
After we figure in taxes, which our attorney did not, he would take home $1,250 in a 50% tax bracket. To pay the contractor our smart attorney would have to earn $4,000 to take home the $2,000 bill for the finished basement. What decision would you make?
This example can be applied to many other similar decisions such as changing your oil, buying in bulk,not paying interest on purchases, and many more.
Another example is having one spouse working. If both are working, that’s a higher total income, subject to a higher tax bracket. After you factor in wardrobe for work, eating out more since no one is home in time to cook as much, child care, and other work related costs, it may not be worth it, or the actual “take home” amount would be very low. Read my article on how much do you actually bring home from your job?
The purpose of this article is to help you see the true worth of something. It gets your mind working in a much more broad, yet accurate financial perspective and can help make correct decisions.
How will you use the WYHTE phenomenon?
Check out my blog, Stewardology for more.