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Learn the difference between price and cost depending on your salary to make better decisions with your money.
Do you know the difference between what you pay for something and what it really costs you? In this post, you will learn the difference between price and cost and how prices of things change depending on how much someone makes. You will learn how to calculate how much you earn per hour in relation to a salary and many practical examples so that you can make better financial decisions.
(I leave you the formulas at the end of the post to apply them to your personal case).
Let’s start,
Do you know how long you have to work to earn $50?
If I ask you how much you paid for the morning coffee, the dinner with friends, or the new sweater, you can probably tell me the exact amount.
Now, if I ask you how long you had to work to be able to pay for that coffee, that dinner, or that new sweater with your current salary, what would you say? You probably don’t know.
In the consumer world, we focus on the price of things without considering the true impact they have on our finances. But what happens when we look beyond the price and examine the real cost it has for each of us? That is, the work effort we have to make to acquire that item.
Let’s look at the difference between the price of something, what it says on the label or ticket, the invoice, the receipt, and what you really pay — that is, what it costs you to earn that money.
And yes, they are two different concepts.
First, let’s clarify the concepts. Let’s see the difference between Price vs. Cost:
Price: It is the amount of money you pay for a product or service in the market.Cost: It is the real financial impact that this price has in relation to your salary.
And it is very important to be clear about them to know how to manage our finances correctly.
I’m sure nobody taught you that at school or at home. Me neither.
First, I’ll explain the steps to follow, and then we’ll see them with examples.
Change your financial perspective
How do I calculate the price per hour worked?
The data you need:
Step 1. Determine your total salary. How much do you earn in total in a given period, whether weekly, biweekly, or monthly?
Step 2. How many hours do you work in that given period?
Step 3. You divide your total salary by the number of hours worked during that period.
This calculation will give you your hourly wage.
Now, memorize that figure and remember it whenever you are going to spend money.
Let’s look at a practical example. Then, you can extrapolate it to your specific income.
Step 1. You earn 1,500 (dollars, euros, pesos, etc.) per month.
I am going to work with the $ symbol, as it is the best known.
Step 2. You work 40 hours a week, which is 8 hours a day. If a month has 30 days, we work 5 days a week. This is 22 days.
Step 3. Divide $1,500 by 22 days of work = $68/day, divided by 8 hours/day = $8.5/hour.
The result is that every time you work 1 hour, you earn $8.5, or, put another way, for every time you spend $8.5, you have to work 1 hour if you have a salary of $1,500.
So, every time you spend $50, you work 5.8 hours to earn it at a salary of $1,500.
To see it more clearly, we multiply the decimal part (0.8) by 60 to convert it to minutes: 0.8 x 60 = 48 minutes.
So if you win $1,500, you spend 5 hours and 48 minutes to win $50.
Why does money take on another perspective?
Change your financial perspective
Look at these examples that illustrate how the cost of products and services can vary significantly in terms of working time needed for people who work the same number of hours but have different salaries.
Example 1: Public transportation
- Price: A bus ticket costs $2.
- Person who earns $1,500 per month: This person earns approximately $375 per week working 40 hours. Therefore, it is equivalent to approximately 19 minutes of work.
- Person who earns $2,500 per month: This person earns approximately $625 per week working 40 hours. So it equates to approximately 12 minutes of work.
- Person who earns $3,000 per month: This person earns approximately $750 per week working 40 hours. So it equals about 10 minutes of work.
Example 2: Breakfast
- Price: We had an $8 breakfast.
- A person who earns $1,500 per month: The cost of breakfast is equivalent to approximately 51 minutes of work.
- A person who earns $2,500 per month: The cost of breakfast is equivalent to approximately 31 minutes of work.
- A person who earns $3,000 per month: The cost of breakfast, which is equivalent to approximately 27 minutes of work.
Example 3: $40 dinner.
- Price: If you go out to dinner with friends at a restaurant, it costs you $40.
- A person who earns $1,500 per month: The cost of dinner is equivalent to approximately 3 hours and 24 minutes of work.
- A person who earns $2,500 per month: The cost of dinner is equivalent to approximately 2 hours and 3 minutes of work.
- A person who earns $3,000 per month: The cost of dinner is equivalent to approximately 1 hour and 42 minutes of work.
Example 4: Medical care
- Price: A medical consultation of $100.
- A person who earns $1,500 per month: The cost of a medical consultation would be equivalent to approximately 10 hours and 40 minutes of work.
- A person who earns $2,500 per month: The cost of a medical consultation is equivalent to approximately 6 hours and 24 minutes of work.
- A person who earns $3,000 per month: The cost of a medical consultation is equivalent to approximately 5 hours and 20 minutes of work.
These examples clearly illustrate how the cost of products and services varies significantly in terms of the labor time required to pay for them, even for people who work the same number of hours but have different salaries.
That is, the same price requires a very different amount of work depending on a person’s income level.
Hence, based on one’s income, the expense of a product possesses distinct financial implications.
Change your financial perspective
3. Adjusting the cost per hour further.
The above numbers would not be entirely correct. Since going to work comes with implicit expenses that must be deducted from the salary, Yes, going to work costs money.
Practical example: And then you adapt it to your reality.
You need to get to work, whether by public transport or private transport. The clothes I wear at home are not the same as what I wear to work, and we all know that on the way to work or at work I always drink something. TRUE?
So $1,500 minus ($50 minus $80 minus $140) = $1,230 left in my pocket.
$1,230 divided by 22 days of work = $55/day, divided by 8 hours/day = $6.90/hour
In this case, a $40 dinner would cost almost 6 hours of work (40 divided by 6.90 = 5.7 hours), which is equivalent to 5 hours and 42 minutes.
Conclusion
Calculate your number so that you have a clear idea of the monetary value of each hour that you spend in the office.
This is a simple way for you to know the relationship between each of your expenses and the work effort you have to make according to your current salary to pay for them.
The lower the income, the more effort. The higher the income, the less effort.
So, knowing what the price per hour worked is according to your salary will help you make good financial decisions in your daily life.
I leave you the calculator so you can put your numbers:
We hope that this post has helped you strengthen your financial control. What has surprised you the most? We look forward to your impressions in the comments section. Let’s talk.
If you liked it, share this quote on social networks:
Every hour worked has a value. Know yours and optimize your daily financial decisions. #TimeValue #SmartDecisions #MAPPINGVITA
