Your iPhone Costs How Many Hours?!

Time, Money and Goods & Services are three forms of value. Think about them in the context of work. We use our free time to generate value for an employer. This value is exchanged for money in the form of a salary. We can then use that money to purchase goods and services which we deem valuable.

We could represent it like this:

We often examine the ‘Time’ / ‘Money’ trade off – ‘am I earning enough for the time I commit to my job?’. We also consider the ‘Money’ / ‘Goods’ trade-off – ‘is this product worth the money?’.

But we rarely link ‘Time’ directly with ‘Goods & Services’. This question would be, ‘is this product worth the time I have to put in to be able to buy it?’.

We’re better off thinking of the link between time, money and goods & services as a ‘Value Triangle’, where each is linked to the other:

Thinking about the link between Time and Goods & Services is eye opening and at the root of many money mistakes. It helps to better explain the trade-offs we make – consciously or unconsciously – every day. Let’s dig a little deeper.

THE TRUE COST

We often think we have enough money to buy product X. But what if I told you how much something costs not in money, but in time? It might change your perspective.

Take the example of the new iPhone. If you walk down the High Street, you’ll see a surprising number of people with the latest iPhone. They can’t all be wealthy, but they all seem to have the new phone. How much does it cost them in terms of time?

Let’s do some quick and easy maths.

Assume a top-of the range iPhone costs £1,500.

Assume your salary is £35,000 before tax, £28,000 after tax.

Assume you work 40 hours per week for 47 weeks per year.

That gives an hourly salary after tax of ~£15/hour. (£28,000 / 47 weeks / 40 hours per week).

Assume the iPhone lasts for 4 years. As such, it costs £375/year (£1,500 upfront / 4 years).

So to fund your annual iPhone cost, you need £375/year. It takes 25 hours of earning £15/hour to afford this. In other words, you need to work more than three full days each year just to afford your new iPhone. The average person works around 940 hours per year. So the 25 hours of work to afford your iPhone is 2.7% of your total working time each year. That’s a lot.

But it gets worse. If, instead of buying the phone, you invested the £1,500 at a 7%/year return, rather than spending it, then in 20 years it would be worth £5,800. Perhaps in 20 years your salary will be far higher – let’s say £25/hour. But now your iPhone’s cost is 232 working hours (the £5,800 you could have had divided by £25 per hour).

That’s 58 working hours each year, or 6.2% of your total working time. It’s one and a half weeks per year where you’re working just to afford your iPhone. Is it worth it? Or would you rather have 58 hours per year of extra leisure time. That’s over one hour per week of extra time to do something else…

Solidifying this ‘Time’ / ‘Goods & Services’ link in the Value Triangle makes our trade-offs clear. The price of your iPhone is one and a half hours per week. Framed in this way, is it worth it? That’s up to you, but at least you directly see the trade-off.

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BUY / AFFORD / LIKE?

By framing the cost of goods and services against time, you can avoid many poor financial decisions. For example, you (or perhaps a less intelligent friend…) might have £5,000 in the bank and see that the iPhone costs £1,500. Your friend might think, ‘Perfect – I have enough.’

The answer to the question ‘Can I buy it’ is yes. You have enough cash to make the payment. But this is different to the question ‘Can I afford it’. If you only have £5,000 in assets to your name, is it wise to commit 30% of it into a brand new phone which only lasts four years?

And even if you’re wealthier and can afford it, are you happy with the Time / Goods trade-off? Some people would happily work an extra week and a half each year to afford a new iPhone. Some would happily work more! And most of us would prefer to spend less than 6% of our working time on a phone. It’s an extra hour of work every two days…. The choice is yours to make. But make it in full knowledge of the trade-off for making that decision.

Next time you make a major purchase, ask yourself the question: ‘how many hours will it take me to make this much money?’ Once you have calculated your after-tax salary per hour, you can run your own numbers. Rather than ‘would I rather have £150 or this pair of jeans’, ask ‘would I rather have 10 hours of free time or this pair of jeans?’. Sometimes this helps clarify what you really want.