What am I giving up in retirement savings when I spend money today?
This is an easy one–add a zero to the price tag. Assuming you have 30 years to retirement and earn 8% annually on your investments, that $3,000 watch would have been worth $30,000 in retirement if you had invested the money instead. Coming down to earth a bit, the $4 latte (it’s always the latte) purchased 5 days a week costs about $1,040 a year, or $10,040 30 years later in your retirement account.
How much do I need to earn before taxes to buy stuff that I want?
Assuming you’re in the 28% federal tax bracket, multiply the cost by 1.4. That means a $20,000 car costs $28,000 before taxes. Yikes! Of course, this doesn’t account for state tax, social security tax and medicare tax, all of which would take the multiplier even higher.
Does my fund manager’s performance justify his fees?
Multiple the fund’s expense ratio by 10. The resulting percentage is the amount by which the fund needs to out perform a low-cost index fund to justify the fee. Think about that–a fund charging 1% must outperform an index fund by 10%.
What do I get paid by the hour
Simply divide your annually salary in half and drop the last zero. If you make $80,000 a year, your hourly pay is about $40/hour.