You will be able to restate a price as hours of your working time and as its future value.
S$1,800 for a new phone feels like one number. Mention it to a friend and they will tell you whether that is a good price for that model. What nobody says is how long you had to work to earn it, or what that S$1,800 might have become if you had left it alone. Both are easy to work out, and both change how the price feels.
Lesson 7.1, Every dollar spent is a dollar not doing something else, gave you the question "compared with what?" This lesson gives you two ways to answer it with a number. The pay and rates used are examples.
The first figure you need is your after-tax hourly pay. It is the amount you keep, on average, for each hour of work.
Take Aisyah, 29, with figures made up for the example. Her take-home pay, after her CPF contributions are deducted, is S$4,200 a month, and she works about 40 hours a week. Over a year that is S$4,200 times 12, which is S$50,400, for about 40 times 52, which is 2,080 hours. S$50,400 divided by 2,080 is about S$24.23 an hour. In Singapore, income tax is not usually taken from each payslip, so if you pay it, subtract your yearly tax bill from the S$50,400 first. Your notice of assessment from IRAS shows the amount. If you regularly work longer than your contracted hours, use the hours you really work.
Now divide the price by that hourly figure. The S$1,800 phone is 1,800 divided by 24.23, which is about 74 hours. For Aisyah that is almost two full working weeks. A S$12 lunch is about half an hour. A S$600 weekend away is about 25 hours.
Dollars are abstract, and hours are something you have lived through. Most people know exactly how a long working week leaves them feeling on Friday night, so "two weeks of work" lands harder than S$1,800 and is easier to weigh against how much you want the phone.
The second number is what the money could become if you did not spend it. This is the future value from lesson 6.2, Future value: what a sum or monthly saving grows to.
Pick a modest rate. A high one makes every purchase look like a disaster and proves nothing. Aisyah picks 3% a year as an example. In a spreadsheet, =FV(3%, 10, 0, -1800) gives S$2,419.05. So the phone costs her S$1,800 today, and in a sense about S$2,419 of money she would have had ten years from now.
This is not a prediction. Nobody guarantees 3%, and she might well have spent the S$1,800 on something else. It is a way of seeing that money spent today also takes away whatever that money would have grown into.
A one-off purchase is paid once. A recurring cost is paid again and again, and that is where both measures grow fastest.
Aisyah has a S$30 a month subscription she rarely uses. In hours, that is S$360 a year, or about 15 hours of work every year. In growth terms, saving S$30 a month instead for 20 years at 3% a year, credited monthly, gives =FV(3%/12, 240, -30), which is S$9,849.06. She would have paid in S$7,200 and earned S$2,649.06 on top. At 4% the same habit reaches S$11,003.24.
A S$30 charge never feels like a decision, because each month it is small and it renews by itself. Over 20 years it adds up to a sum close to S$10,000 in this example. That is why recurring costs deserve a second look more than one-off purchases do: each renewal is a choice you have stopped noticing.
None of this is meant to make you feel bad about spending. Some purchases are worth every hour. A phone you use for work every day, a course that leads to a better job, a trip home to see your parents: you might look at 74 hours or S$2,419 and say yes, easily, and that is a good decision made with full information.
The aim is to see the trade before you make it. When the hours and the future value are in front of you, the purchases that were only habit tend to fall away, and the ones you keep feel chosen.
The best place to try both measures is on a cost that repeats. Find your after-tax hourly figure first, using your own payslip and tax bill, then look through your bank statement for the charges that come back every month.
Take one recurring expense and calculate its cost in working hours per year and its future value over 20 years at a rate you choose.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).