Min Hus is doing an online YMoYL book club. Totes check it out. This week they’re on chapter two, calculating their effective wage– the idea of converting the cost of stuff into life energy that’s expended so you have a better idea of whether or not that stuff is actually worth the price.
Economists do this all the time– our effective wage rate includes not only the cost of things you buy in order to get to work, but also the unpleasantness or disutility of the work. We make assumptions that wage rates are higher when the costs and disutility are higher. We call these compensating differentials.
But we also value money in terms of how much of one good you have to give up by buying another good. Money is simply fiat– something that allows you to buy goods and services. You have a budget constraint and that means you can only buy so much of everything. If you buy X widgets, you can’t buy as many sprockets as you would be able to if you hadn’t bought any widgets.
Folks who aren’t economists (or who aren’t economists *yet*) also use these kinds of metrics to get at the idea of how much their money is worth– what they have to give up if they buy one thing instead of another. Specifically, this comment by Debbie M about how she used to measure purchases in terms of how many boxes of macaroni and cheese she could buy reminded me of how I determined whether or not something was worth purchasing during most of my childhood.
I was really into the candy-bar metric. When I started it was 3 candy bars = $1. Later it became 2 candy bars = $1. (My allowance was pretty small by national standards according to my Penny Candy (?) magazine– 10 cents per year of age. I couldn’t imagine people who got the average allowances worth 10 candy bars/week. How did they eat all that candy?) I’m not really sure how much a candy bar costs these days. :|
Later, through college and graduate school (after we got rid of DH’s debt– there was no need to buy anything because the answer was always “no” until that was gone), my general metric was 1 meal out = $5. Everything was calculated in terms of a meal out.
These days I don’t really do that anymore. Pretty much anything I want under $200 I just buy. (Which makes it sound like I’m a spendthrift, but my natural inclination is not to buy anything, so when it gets to the state where I want it now rather than sticking on my Amazon list, I might as well buy it. Mainly it means I don’t stress at 3 figure grocery bills.) I don’t know what I *would* use for an appropriate metric these days. Maybe time to mortgage payoff (though Debbie M was not impressed with that idea!). When I was thinking about flying DC’s relatives out here, I calculated how much tuition the flight would pay for (answer: a full semester at CC), and just put that money in a 529 instead.
How do you figure out how much a dollar is worth? Do you have a metric like this where you trade off in terms of salary or in terms of other goods you can purchase? Have you had such a metric in the past (or would it help you in the future?)