Money is a little bit of a strange thing. At it’s core, money is simply paper and metal. Or more and more, figures on a computer screen. Yet, this paper, metal and computerized figures shape and move almost every aspect of our life and the world around us, simply because society has assigned value to the money. But don’t worry, I’m not going to launch into an econ lesson on why and how the value of money is determined. What I am going to address is the value of money in your life. Because exploring this could change how you think about money for the rest of your life.
What Money Means to You
If you’ve never done this before, ask yourself why money is significant to you. Your immediate instinct is probably to dismiss the question as pointless. You might be thinking “of course money is significant, because… well… it’s money!” The problem is that we’ve been taught for so long that money is significant but we’ve stopped to ask why.
Start digging into the question, however, and you might start coming up with answers such as “money is important because it allows me to provide for my family” or “money helps me pursue my dreams” or “money buys me status among my friends.” Chad Gordon suggests that money’s meaning is in the safety it provides.
Be honest with yourself- there’s no right or wrong answer. If you dig deep enough into this question, you should start touching on what your priorities and values are in life, so don’t rush it! Ultimately, money has meaning because it affords you things, experiences, or services that improve your life.
How Much Money is Worth to You
But now there’s a flip side to the equation. We’ve touched on why money has meaning for you. But what is money worth to you? This side of the equation is the amount of effort it takes to earn your money. If you’re like most of us, you trade your time, energy (mental or physical), or both for money. You probably have a somewhat consistent trade-off between time and money.
This trade is going to be different for everyone, which is why a dollar isn’t worth the same to everyone. For example, someone making $200/hr in consulting won’t think twice about spending $10 on a prepared meal. This is equivalent to less than 5 minutes of his time. However, for someone making close to minimum wage, that $10 represents approximately an hour of work. It also represents a much larger portion of his or her earnings, leaving less room to purchase other things (although to a certain extent you can boost your income with some side gigs).
Finding Value with Money
Finding value with your money simply means that what you spend your money on is worth what it took to earn it. Don’t be tricked into thinking that this is as simple as figuring out whether you got a ‘good deal’ on something. Just because you got a new TV for 30% off doesn’t mean that it was worth it. Rather, when you decide an item’s value, you look at how it will affect or improve your life.
If that TV will significantly improve your leisure time at home, perhaps because you’re upgrading from a 20″ tube to a 50″ flat-screen, it very well might be worth every penny you pay, even at full price. The money you pay may represent a good 30-40 hours of work, but you’ll enjoy many more hours of leisure time with your TV, perhaps watching sports with friends, or movies with your family. On the other hand, if it’d be your third large-screen in the house and will likely sit in a room where it will never be used, or if you’re just not at TV watching kind of person, it probably won’t provide any value, and even a 75% discount likely isn’t worth it.
Of course, when you’re in the spur of the moment and see something cool or fancy as you walk through a store, it’s hard to remember this value trade-off. We see the item, want the item (but don’t necessarily know why), know that we have the money (or credit card), so we buy.
Instead of falling into this impulse buying trap, get in the habit of pausing before any purchase and asking yourself if the purchase is worth trading away x hours of your time at work and x portion of your finite income. This applies not just to physical items, but also any services or conveniences that you might pay for such as your cable bill, a taxi ride, or sports tickets.
This is by no means to say that you should stop spending money altogether. Back to the $10 prepared meal for the minimum wage worker- perhaps because she ordered a pizza instead of prepping dinner, she was able to spend extra quality time with her kids before bed. That $10 is likely well worth it. For someone else, $30 sports tickets might buy memories with friends that will last a lifetime. So no, by no means is all spending bad. Just be sure that the money you spend is buying something that is worth it to you.