Is it worth it? That’s the number one question I get asked. Should I buy this thing or that thing? Is this a deal or a ripoff?

Is a purchase worth it?

Over the years I’ve attempted to answer this question many times with varying results. I’ve pondered if shopping at Costco, switching to generic over-the-counter drugs, using a Diva Cup, or opting for cloth diapers are worth it?

Is it worth it?

The truth is I don’t always know the right answer for YOU because I have little insight into how you value your time, your money, and the items you seek to buy.

This truth hit home the day I asked if the $900 Canada Goose winter parka was worth it. The internet lost it’s mind.

The debate was passionate. On one side, the naysayers said the coat was too expensive. These folks argued you could buy a comparable coat for less and the steep price reflected the exclusivity of a luxury brand, not the quality of the materials.

On the other side, the yaysayers said the parka was worth it. Coat owners loved their parkas citing quality, attention to detail, made-in-Canada credibility, and how it kept them warm in a variety of cold climates.

When my blog story was picked up by the Globe and Mail and became a news story, I knew Canadians cared about the cold, sure. But after thousands of comments across social media debating the quality, longevity, luxury branding, and cost of the parka, I realized we had all missed the point.

No one thought to measure the parka’s cost by the hours they needed to work to earn it.

Back on an organic farm where I lived with my family for 7 years, my father-in-law Ralph — the Boss of the ranch — measured an item’s cost with the cattle he needed to sell to buy it.

His financial perspective changed how I thought about spending and whether something was worth it.

In farmer currency he can buy two Canada Goose parkas for one calf.

Is a Canada Goose jacket worth it?

Or he can sell 88 bales of hay for one parka.

Is a canada goose worth it?

Now I realize that hay bales and cattle are unconventional currency metrics, not unlike Bitcoin. So let’s look at city dollars.

Here’s the “Is it worth it?” calculation:

Salary: $60,000
Net: $48,000
÷ 52 weeks, 40 hours/week
Hourly Rate: $23/hour

Let’s say you earn a really sweet salary, perhaps $60,000 per year. You don’t get to keep it all because of taxes, so you net (take home) around $48,000 per year. If you work 40 hours per week your hourly rate is $23, which is well above minimum wage here in Canada.

Question: How many hours do you need to work to buy the coat?

Answer: 39 hours

That’s the true cost of the coat.

Even on a substantial income you must put in a week of full-time work to buy this coat.

Mental Accounting and “Is it worth it?”

Because money is an abstract concept – it can be a piece or a paper or a digital number in your bank account — I want tie money to something tangible. That’s your time, your life. It’s a valuable method because studies show we don’t treat all our money equally. Ask yourself this question:

Which is easier to spend?

  1. Birthday Money, from your grandmother.
  2. Job Income, from your pay.

It’s easier to spend the birthday money because we view it as a windfall.

What I did here with the birthday money was apply a concept in behavioural economics called mental accounting. Mental accounting (or psychological accounting) tries to describe the process where we categorize and have multiple accounts for the same resource — your money. For example, you may use different monthly budgets for grocery shopping and eating out at restaurants, even though both expenses draw on the same resource — your income.

Mental accounting was first named by Richard Thaler, winner of the 2017 Nobel Prize in Economics and author of Nudge: Improving Decisions About Health, Wealth, and Happiness.

By being aware of how we treat our money differently through mental accounting — whether it’s a job bonus, birthday money, or our weekly income — and by tying money to time, you get a more valuable, more personal idea of an item’s true cost. And this can help you make better spending decisions.

Love love love,

P.S. I invented a term for impulse spending at the grocery store — it’s called the Fluff Factor. To combat these “Fluff” purchases go ahead and use your hourly rate to see if spending this extra money on food is “Worth it!”