Optimization Calculation Tricks

[englishteacheralex]

I really enjoyed the latest MMM post about opportunity cost and cost per use.

That type of calculation is my favorite thing to read in any personal finance blog. It's my favorite thing in Amy Dacyzyn's stuff, too. It's the kind of mental math I do with personal finance decision-making all the time.

Here are a few of my favorites...

Mental Math Tricks for Optimization:

1. "Should I sell it?" How much could you get for it? Would you use that money to buy it again? If not, sell! If yes, keep!

2. Cost Per Serving Add up the cost of every ingredient and figure out how many portions you got out of the recipe. Divide the costs by the portions and that's your cost per serving. For bonus points, compare to a comparable pre-made meal from the grocery store or a restaurant.


3. Cost per use The MMM trick where you have to not only add up the sticker price of something, but then also the maintenance. Then take the opportunity cost of the original sticker price MINUS the price of renting or going without the thing, times whatever you could have made investing that money in whatever. Divide that number by the number of times you used the thing.

4. Hourly Wage Take the amount you would have paid for a service and divide it by how long it took you to do the thing yourself. That's your hourly wage for DIY. Make sure you recognize the fact that you shouldn't compare that hourly wage to the money you make when doing your compensated employment. You should compare it to what you would have made for the time doing whatever you would have done instead of DIYing the thing.

(This one really helped me mentally get through a horrible 8 hour flight with a 1.5 year old on my lap. The cost of a plane ticket was $1000. So I made about $125/hour by having her on my lap. Worth it!!!)

5. Time to ROI: (pointed out by @SimpleCycle ) Take the purchase price of X, and the price of what it would cost to do Y without X. Divide X by Y and voila, the number of times it takes for you to break even on the purchase of X.

So...VITAMIX! $400 (X)
Jamba Juice smoothies: $5 (Y)

You would need to drink 80 Vitamix smoothies to break even on your former Jamba Juice life.

OK YES YES I KNOW NOBODY WOULD EVER BUY A VITAMIX AND THE PROPER X VALUE IN THIS EXAMPLE IS $10 FOR A THRIFT STORE BLENDER PLUS WHO WOULD EVER BUY A JAMBA JUICE SMOOTHIE BLECH YECH YUCK SO MUCH SUGAR AND $$$$$$$

Any other calculations that help you optimize/stay motivated towards frugality?

BONUS: (related but not exactly the same) Has anybody come up with a standardized fillable spreadsheet for making a grocery price book that they feel like sharing?

If it's not really shareable, I'd still be pretty impressed and fascinated by your grocery price book methods/experiences.

[SimpleCycle]

I almost wrote a similar post today!  Time for ROI is another favorite of mine.  I just calculated that for a fan I purchased.  I figured out it would only take 3.5 months for the fan to pay for itself in decreased cooling bills.

[sokoloff]

4. Hourly Wage Take the amount you would have paid for a service and divide it by how long it took you to do the thing yourself. That's your hourly wage for DIY. Make sure you recognize the fact that you shouldn't compare that hourly wage to the money you make when doing your compensated employment. You should compare it to what you would have made for the time doing whatever you would have done instead of DIYing the thing.

You also need to divide by (1 minus your marginal tax rate(s)). If you're paying 24% Federally and 6% state/local, you only take home 70% of what you make. If you save $100 by doing a task instead of hiring it out, that's an after-tax savings, so you actually "made" $142.85 [100/(1.00-0.24-0.06)] in wages by doing that job as you'd have paid $42.85 [142.85*(0.24+0.06)] in taxes, leaving you with $100 that you saved..

[englishteacheralex]

I almost wrote a similar post today!  Time for ROI is another favorite of mine.  I just calculated that for a fan I purchased.  I figured out it would only take 3.5 months for the fan to pay for itself in decreased cooling bills.

This is totally something I do. I'm adding it to the first post.

[englishteacheralex]

4. Hourly Wage Take the amount you would have paid for a service and divide it by how long it took you to do the thing yourself. That's your hourly wage for DIY. Make sure you recognize the fact that you shouldn't compare that hourly wage to the money you make when doing your compensated employment. You should compare it to what you would have made for the time doing whatever you would have done instead of DIYing the thing.

You also need to divide by (1 minus your marginal tax rate(s)). If you're paying 24% Federally and 6% state/local, you only take home 70% of what you make. If you save $100 by doing a task instead of hiring it out, that's an after-tax savings, so you actually "made" $142.85 [100/(1.00-0.24-0.06)] in wages by doing that job as you'd have paid $42.85 [142.85*(0.24+0.06)] in taxes, leaving you with $100 that you saved..

That is some high level Amy Dacycyn Tightwad Gazette shit right there. Hat's off for reminding me about the after tax implications of DIYing.

[Lews Therin]

Basic grocery list (Shaded areas are for how often I see the item)

[Freedomin5]

I like using YMOYL’s “real hourly wage” or “life energy spent”  when considering a purchase. So, for example, my real hourly wage is around $30/hr, and $1 equals approximately 2 minutes of life energy. Even time I consider a purchase, like that $5 Starbucks fancy drink, I ask myself whether it’s worth 10 minutes of my life energy.

For large purchases, I always try to find a way to offset the cost. Example, we bought a cottage (non-Mustachian at first glance). It’s quite similar to the tiny house resort mentioned in the MMM article. By our calculations, we can break even by renting it out approx. 6-8 weeks per year. Note that we would never consider this an investment (a cottage is a luxurious expense); it’s just a very optimized expense.