On their journey to wealth and happiness, many people misunderstand an important part of the money equation.

They think earning more, spending less, and investing the rest will make them wealthy. And while this holds true, it’s how they spend their money that can make all the difference.

When I first tapped into the world of personal finance, I read as many books as I could. I went to seminars, joined masterclasses, and watched online courses. I saved 7,000€ for my emergency fund, tracked my net worth’s development, and set up a monthly investment plan.

Yet I felt something wasn’t quite right with my money mindset. In retrospect, I see my false belief: Thinking price and value would be the same.

You can easily spot people who commit this fallacy. They say sentences like “A MacBook is expensive and a t-shirt in sale cheap.”

These statements are flawed because they’re rooted in the assumption that value equals its price. This logic ignores the true value of something, meaning in what way and how much you use it. If you work on your computer eight hours six days a week, your MacBook is likely the cheapest thing you own.

Reading this article, you’ll understand why the price/time ratio works and how you can use it to make better expenditure choices.

Why Most People Make Terrible Buying Decisions

Most people make their buying decisions based on decoy options. They forget the bigger picture and evaluate the price against a similar item or a previous price. A belt that‘s reduced from $70 to $39 appears cheap to them when in fact, they already have three similar belts in their closet.

Second, they make fast, impulsive buying decisions. It’s what Nobel-price winner Daniel Kahneman labels System 1 thinking. We act quick, instinctive, unconscious, and emotional. And while all of us regularly fall into the fast-thinking trap, it doesn’t have to be that way.

A new metric to see the true price of something can improve the way you spend your money. Here’s how.

How to Make the Price-Time Ratio Work For You

The math is simple. The price is divided by the time you use it throughout your life in minutes. The result you get is the price per minute of your life.

As a rule of thumb, everything that costs more than 0.01$/minute has an unfavorable price per life minute. Here’s a list of typical things that have a good vs. a bad ratio.

Bad price-time ratio:

• the second pair of anything (winter jacket, scarf, shoes, belts)
• cars (as they are parked for 95% of the time)
• rarely used household items (like a waffle maker)
• clothes for one time occasions (like a wedding dress)

Good price/time ratio:

• toothbrush
• a bed’s mattress
• headphones
• desk chair (if you work from home)
• computer (if you‘re a knowledge worker)

Why Your MacBook Might Be Cheaper Than A Skirt

I work on my computer for seven hours, six days a week, and use my Macbook for five years before replacing it. If I want to calculate the price per minute, all I have to do is 60minutes x 7 hours x 6 days x 52 weeks x 5 years = 655,200 minutes. I bought it in 2016 for 2,300$, which equals a per-minute price of 0.0096$. A great price-time ratio.

I did the same calculation for a $249 Ted Baker skirt I bought for my master’s graduation. In total, I wore it for 14 hours, or 840 minutes which equals a per-minute price of 0.2964$. See the difference? Relatively, the skirt is 30 times more expensive as expensive than my MacBook.

When you look at your things in that way, you’ll see some things are worth spending money on, as you use them many minutes of your life. On the other hand, be cautious about wasting money on things that cost more than 0.01$/minute as you won’t have much value for them.

The Bottom Line

The best way to judge something’s true price is by thinking about how often you will use it. Because more often than not, we end up buying ‘good deals’ that don’t add any value to our lives. On the contrary: these things sometimes even decrease our satisfaction. As Ryan Holiday put it:

“Mental and spiritual independence matter little if the things we own in the physical world end up owning us.”

Making great buying decisions doesn’t need to feel complex or exhausting. Remembering to divide the price by the time you’ll use it can actually be quite fun.

Once you compare the price with the time you’ll use it; you’ll stop buying things you don’t need. Plus, you don’t make a mistake to save on something you will use every day.