IT'S ABOUT TIME
By: Ben Miller
“The cost of a thing is the amount of what I will call life which is required to be exchanged for it, immediately or in the long run” -Henry David Thoreau
We all know that time is our most precious and scarce resource. But we sure don’t act like it a lot of the time. Most of us routinely sell our best and freshest hours of the day to our employer, in exchange for money. This isn’t inherently a bad thing. Money is helpful. It can get us out of a bind, set us up well for the future, or enable us to splurge on a worthwhile experience with someone we love.
But money’s value is only instrumental. It is there?for?other things. Money is an overwhelmingly powerful technology for allocating human effort and promoting cooperation. Its triune functions as a unit of account, a medium of exchange, and a store of value make it indispensable for the way we live our lives. But it’s only a tool.
Crafting the Tool
For most of us, the primary source of money when we start out is very simple: we sell our time. Later on, once we’ve diligently saved, we can employ some of our money to make money for us (even while we sleep!), but ultimately, in our investment account, each dollar’s father (or grandfather) probably came from an hour of our labor sold to someone else.
Money is so remarkably useful and fungible that we often make the mistake of treating it like something more than it is. We act like it has intrinsic value, but it is only valuable insofar as someone else will accept it in exchange for a good or service.
Two Ditches
It’s easy to get so caught up in the habit of accumulating money that we forget?why?we are accumulating money in the first place. Every dollar we take in is either spent or saved. If it is spent, it buys something now. If it is saved, it buys something later (for you or for your heirs). End of story.
Sure, on its way to eventual consumption, it can be put to work to recruit more money, but at the end of the day, all saving is just postponed consumption in one form or another.
The urge to make money is a good instinct so long as we keep it within reasonable bounds. But it’s important to acknowledge that there is a ditch on both sides of the road. Having or saving too little money is a recipe for pain down the road. But having or saving?too much?money is a problem as well.
Redenominating
Thoreau was notoriously self-reliant and frugal, to a point that some would find distasteful. However, hearkening back to the opening quote, it’s easy to see why he did things the way he did. He was careful to remember what so many of us forget: that the money we spend on something is accumulated primarily by selling the time of our lives.
Money is just a halfway house. It’s a place where the time of our lives stops and takes a breather while we wait for it to come back and benefit us. It’s easy to know how much you make per hour, and easy to know how much that overpriced sandwich near the office costs, but somehow we so often skip that crucial final step: that sandwich’s ultimate cost is reckoned not in dollars, but the time it took us to earn those dollars.
Is $10 too much for a sandwich? It depends on your situation. If it takes you half an hour to earn it, then it very well may be. If it takes you two minutes, maybe not. Furthermore, it depends on your preferences. If you’ve recently burnt your tongue and can’t taste anything anyway, you may as well go for something healthy and cheap. If you’re Joey Tribbiani and you live for sandwiches, maybe the half hour is worth it after all.
Abstraction
Zooming out from one sandwich to your life as a whole, the same logic holds. If you’re doing things right, you eventually get to a point where the numbers you deal with when reckoning your financial situation are too big to be properly understood by intuition. No, not just for the super-rich.
If you’re thinking of retiring in the US, it’s a good idea to target having at least $1 million. Ever tried to count to a million? My 4-year-old daughter recently made an attempt, and it ended in tears. She had to call it quits at 247 because it was taking too long. The point is, if we’ve accumulated some savings when we’re dealing with our finances, the numbers are too big to be intuitive. We don’t feel them.
However, the time of our lives is something we all feel intuitively. Time is where everything happens, good, bad, and otherwise. Time is opportunity. It is a string of moments that we are fortunate enough to have anything happen to us at all.
A year of your life is something you can get your head around. It means something in a way that money never can.
Trade-Off
Think about it – from the standpoint of the human race as a whole, there is no amount of money that a sane person would accept in exchange for all of the human race’s remaining time. But if the clock had run out, you could bet your bottom dollar that a sane person would trade all of humanity’s wealth for just another day for humanity to survive.
That suggests that there’s no exchange rate. But we know there is an exchange rate. After all, most of us spend 5 days a week using that exchange rate to buy necessities or pad our savings.
Perspective Change
If time equals money on the way into your bank account, then money equals time on the way out of your bank account. If you want to do some quick and dirty envelope math, you can just divide your savings by your annual expenses, and that’s how many years of your present lifestyle that your present situation can buy for you. Now that’s a number worth tracking.
If you want to get fancy (and yes I do, I’m all about fancy), you can build in expected investment returns and watch as every $1k in the bank buys you more time than the last thousand due to the time value of money.
This also means that there are two routes to improving that number: saving up more money and decreasing your expenses.
You’re left with a number that has taken two important but abstract numbers (your invested assets and your annual expenses) and transformed them into an impactful number that reflects something real: the amount of time you can afford to be Financially Independent right now.
A million dollars means something different to everyone. But it’s useless without time. Translating that money into time in the context of your own life is what gives it meaning.
Every time we make a spending decision or an earning decision, the question we should ask ourselves is ultimately, “Is this worth my time?” Apply this rule diligently, and you’ll be well on your way to having the time of your life.
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This was originally posted at: ChroniFI | Blog