March 23, 2004
Money isn't just pieces of paper, nor is it just a number on your bank statement.
When it comes down to the tough spending decisions, it'll help to have an accurate and clear idea of what money really means to you. Here are a few ways to think about money:
- Break your expenditures into how long it took you to earn that money. To do this, you have to estimate your hourly pay. For folks who work a 40-hour week, your hourly pay is roughly half your annual salary, divided by 1,000. For example, if you earn $40,000 a year, you make about $20 an hour. So the next time you're tempted to spend $100 on a fleeting pleasure, ask yourself, "Is this worth five hours of my labor?"
- Consider how much the money would be worth if you invested it instead. For example, let's say you could shave $100 off your food budget each month. Instead of spending that money, you deposit it in an investment that earns 8% annually. After five years, you would have more than $7,400. In 20 years, it would be worth almost $60,000.
- Every time you open your wallet, think of your goals. The more you spend, the less you save. So, every time you spend money, you are prolonging -- and perhaps undermining -- your ability to buy that new car, fund your children's education, or build that tree house with the hot tub.
- When you think money, think chicken. According to Heifer International, an organization that offers families around the world a way to feed themselves and become self-reliant, a batch of chicks is worth $20. A goat or a pig costs $120, a buffalo fetches $250, and a heifer is worth $500. So, the next time you want to buy a CD or two, ask yourself if they'll be worth that poultry sum.
- Speaking of charity, if altruism runs in your veins, then think about what good could be done with your money. Finding a way to trim $100 from your monthly budget could do wonders for a worthwhile charity.
You can add extra power to your money by putting it in the right place. Visit our Savings Center and Discount Broker Center for ideas. And for more ways to empower your pennies, check out The Motley Fool Personal Finance Workbook.