{"id":235319,"date":"2018-01-23T05:00:02","date_gmt":"2018-01-23T13:00:02","guid":{"rendered":"http:\/\/getrichslowly.org\/?p=235319"},"modified":"2023-10-04T20:40:11","modified_gmt":"2023-10-05T02:40:11","slug":"time-is-money","status":"publish","type":"post","link":"https:\/\/www.getrichslowly.org\/time-is-money\/","title":{"rendered":"Time is money: How frugality buys freedom \u2014 tomorrow AND today"},"content":{"rendered":"<p><img decoding=\"async\" loading=\"lazy\" class=\"alignright green-border\" title=\"Time is money and money is time.\" src=\"https:\/\/www.getrichslowly.org\/wp-content\/uploads\/24676798279_e25f2b78a5.jpg\" alt=\"Time is money and money is time.\" width=\"423\" height=\"500\"\/>&#8220;Time is money,&#8221; my father used to tell me when I was a boy. He didn&#8217;t like how I dawdled with my chores. I didn&#8217;t understand what he meant back then. To me, <a href=\"https:\/\/www.getrichslowly.org\/time-money-happiness\/\">time and money<\/a> were two very different things. As a kid, I had lots of time but very little money.<\/p>\n<p>Now, as a nearly fifty-year-old man who has written about personal finance for the past twelve years, I get it. Dad was right: <strong>Time <em>is<\/em> money \u2014 and money is time.<\/strong><\/p>\n<p>This notion is the central lesson of <a href=\"https:\/\/www.amazon.com\/dp\/0143115766\/?tag=grsorg-20\" rel=\"nofollow noopener\" target=\"_blank\"><em>Your Money or Your Life<\/em><\/a>, the personal finance classic by Joe Dominguez and Vicki Robin. &#8220;Money is something we choose to trade our life energy for,&#8221; they write. &#8220;<em>You<\/em> are the one who determines what money is worth <em>to you<\/em>. It is <em>your<\/em> life energy. You &#8216;pay&#8217; for money with your time. You choose how to spend it.&#8221;<\/p>\n<p>The authors say that because you spend time in order to earn money, you&#8217;re also spending time whenever you make a purchase. This has some powerful implications.<\/p>\n<ul>\n<li>When you treat time as money (and money as time), you can better evaluate how to allocate your dollars and your hours.<\/li>\n<li>When you know how much your time is worth, you can decide when it makes sense to &#8220;outsource&#8221; specific jobs.<\/li>\n<li>When you spend less, you can work less. In a very real way, frugality buys time. But on a deeper level, <strong>frugality buys freedom \u2014 <em>financial<\/em> freedom, freedom from worry, freedom to spend your time however you choose<\/strong>.<\/li>\n<\/ul>\n<p>Because of the time factor, Dominguez and Robin argue that you don&#8217;t earn as much as you think you do. You may be paid $33 an hour, but your <a href=\"https:\/\/www.getrichslowly.org\/how-to-compute-your-real-hourly-wage\/\"><em>real<\/em> hourly wage<\/a> is less than that. Possibly much less.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"how-to-compute-your-true-hourly-wage\"><\/span>How to Compute Your True Hourly Wage<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Let&#8217;s say we have a friend named Joe and that he&#8217;s a plumber. Joe currently makes the <a href=\"https:\/\/www.bls.gov\/oes\/current\/oes_nat.htm\" target=\"_blank\" rel=\"noopener\">national average<\/a> for his profession, about $55,000 each year. His nominal wage is approximately $27.50 per hour.<\/p>\n<p>Based on these figures, if Joe the Plumber decides to buy a $495 iPad, he&#8217;d need to exchange eighteen hours of his time for it. (Eighteen hours worked x $25 per hour = $495 total wages.)<\/p>\n<p>Ah, but it&#8217;s not that simple. Joe&#8217;s <em>real<\/em> hourly wage isn&#8217;t $27.50 &#8212; it&#8217;s something lower.<\/p>\n<p>Think about your job. Think of all the things you do and the money you spend that you wouldn&#8217;t if you didn&#8217;t work. How long does it take to drive to the office? How much does gas cost? Are you required to own a suit or a uniform? Do you have to take vacations to cope with the stress of your career?<\/p>\n<p><em>Your Money or Your Life<\/em> lists eight such possible job expenses, including a few which might be applicable to Joe:<\/p>\n<ul>\n<li>Commuting &#8212; Joe&#8217;s office is 20 miles from home. Every day, he spends an hour total commuting to and from work in his 2010 Toyota Camry, which costs about <a href=\"https:\/\/exchange.aaa.com\/automotive\/driving-costs\/\" target=\"_blank\" rel=\"noopener\">49 cents per mile<\/a> to operate. His weekly commute costs him five hours and $98 (49 cents times 200 miles).<\/li>\n<li>Clothing &#8212; It doesn&#8217;t take Joe extra time to get dressed in the morning, but it does cost him a little extra money. Several times each year, he has to buy new work clothes because the old ones wear out. Maybe he spends $500 annually on work clothes.<\/li>\n<li>Food &#8212; Joe might take a sack lunch if he were on his own, but he works with a partner who prefers fast food. Joe likes McDonald&#8217;s and Burger King too, so he&#8217;s happy to go along for the ride. Each day, Joe spends about $5 and one hour for lunch.<\/li>\n<\/ul>\n<p>Each week, Joe&#8217;s job costs him about ten extra hours for his travel time and lunch breaks. That&#8217;s about 500 hours each year. He&#8217;s also shelling out $120 every week on miscellaneous job-related expenses. That&#8217;s approximately $6000 per year.<\/p>\n<p>Now that he knows how much time and money Joe spends on the job, he can compute his <em>true<\/em> hourly wage. The equation is simple.<\/p>\n<ol>\n<li>First, Joe subtracts his work-related expenses from his annual salary to find his actual earnings. Using the figures above, Joe is actually earning $49,000 per year ($55,000 base minus $6000 for commuting, clothing, and food).<\/li>\n<li>Next, he computes the total time he spends on his job (including business trips and Christmas parties, etc.). Joe leaves the house at 6:30 in the morning, and doesn&#8217;t return until 4:30 in the afternoon, which means he&#8217;s devoting 50 hours per week to work, or about 2500 hours per year.<\/li>\n<li>Finally, Joe divides his actual earnings by the total number of hours he spends each year on work-related tasks.<\/li>\n<\/ol>\n<p>It takes Joe 2500 hours per year to earn $49,000. His true hourly wage is $19.60. Not bad, but still much lower than the $27.50 per hour he <em>thinks<\/em> he&#8217;s earning.<\/p>\n<p>A new $495 iPad doesn&#8217;t cost Joe eighteen hours of work; it costs him <em>25<\/em> hours of work. To earn money for anything he wants to purchase, Joe has to spend 40% more time on the job than he thinks he does. If you were to include taxes in the calculations, things would cost even more!<\/p>\n<blockquote class=\"highlight\"><p><em><strong>It gets worse!<\/strong><\/em><br \/>\nJoe&#8217;s $27.50 hourly wage is a pre-tax number but his spending is in <em>after<\/em>-tax money. He probably makes close to $19 per hour after taxes, which means his actual true hourly wage is something like $12.63. That&#8217;s less than half what he thinks it is. That new iPad will cost him 39 hours of work \u2014 almost an entire week. I hope it&#8217;s worth it!<\/p><\/blockquote>\n<p>While most people trade time on the job in order to gain money, this concept can also be applied in reverse. It&#8217;s also possible to trade money to buy time.<\/p>\n<p>For instance, I pay an accountant to do my taxes. Not only is he better at this than I am, but it takes him two hours, whereas it might take me twenty. In this case, I&#8217;m happy to trade my money to free up more time to write.<\/p>\n<p>Here&#8217;s another example: When Get Rich Slowly was growing like gangbusters, my hourly wage was astronomical. At the peak, my time was truly worth hundreds of dollars per hour. Back then, I had more money than time, so it made sense to outsource whatever I could. I <a href=\"https:\/\/www.getrichslowly.org\/how-i-made-my-peace-with-hiring-a-housekeeper\/\">hired a housekeeper<\/a>. I paid somebody to do yardwork. I had an assistant who answered my email. Meanwhile, I channeled my life energy into making more money.<\/p>\n<p>Today, however, my hourly wage is effectively zero. Yes, my investments throw off some income and I earn a few hundred dollars per month from my work, but in reality I don&#8217;t have an income. (Because I&#8217;m financially independent, I don&#8217;t <em>need<\/em> an income. Plus, I suspect it won&#8217;t take long for GRS to begin producing a modest amount of revenue.) Today, I have more time than money. As a result, it makes sense to do things myself whenever possible. I don&#8217;t have a housekeeper. I do whatever car maintenance I can. I answer my own email. And so on.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"how-frugality-buys-freedom\"><\/span>How Frugality Buys Freedom<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>All of this is interesting, but we still haven&#8217;t talked about the most powerful product of realizing that time is money and money is time: <strong>When you spend less, you can work less and live more.<\/strong> In a very real way, frugality buys time \u2014 and freedom.<\/p>\n<p>You can see this idea at work on two levels.<\/p>\n<h3>When You Spend Less, You Buy Freedom Tomorrow<\/h3>\n<p>First, because of taxes and compounding <strong>one dollar saved is worth more than one dollar spent.<\/strong><\/p>\n<p>As I mentioned earlier, you buy things using <em>after<\/em>-tax dollars. If you bought a new $23,000 Mini Cooper, for example, you&#8217;d use money left over after paying the government. But in order to get that $23,000, the average American would have to earn <em>$30,000<\/em>. The other $7000 &#8212; in the form of 5-1\/2 weeks of work &#8212; goes to taxes.<\/p>\n<p>But it gets worse. Every time you spend one dollar you could have invested, you don&#8217;t just lose that dollar but any future return you might have earned on it. Assuming typical stock-market growth, one dollar would have a value of $1.93 ten years from now &#8212; and $7.20 in thirty years.<\/p>\n<p>When you combine the effects of taxes and compounding, the results are remarkable. On average, each dollar an American spends represents $2.57 of value in ten years or $9.57 in thirty years. (If you live outside the U.S., the consequences of spending that dollar are probably even greater.)<\/p>\n<p>The bottom line? <strong>The opportunity cost of spending one dollar today is ten dollars you might have had in retirement.<\/strong> By carefully guarding your dimes, you turn them into future dollars.<\/p>\n<p>There&#8217;s a second way in which frugality buys freedom time.<\/p>\n<h3>When You Spend Less, You Buy Freedom Today<\/h3>\n<p>As you know, I believe <a href=\"https:\/\/www.getrichslowly.org\/saving-rate\/\">profit margin<\/a> (or saving rate) \u2014 the percentage of your income that goes to saving and investing \u2014 is the most important number in personal finance. Profit doesn&#8217;t just remove the wall of worry from your life, but it also buys time \u2014 both now and in the future.<\/p>\n<p>When you spend less today, you need to earn less today to fund your lifestyle. It takes less time to earn enough to support $20,000 in annual spending than it does to support $40,000 in annual spending. Obvious, right? But many people fail to see that their lavish lifestyles are the reason they have to work so much.<\/p>\n<p>Spending less also means you need to save less for the future. It takes just $200,000 to fund ten years of a $20,000 lifestyle, whereas it takes $400,000 to fund ten years of a $40,000 lifestyle.<\/p>\n<p><strong>When you learn to live on less, when you keep your profit margin high, you gain the freedom to work less.<\/strong> By maintaining an ambitious saving rate of 50 or even 70 percent in your twenties and thirties, you can retire when you&#8217;re 40 years old instead of 65. This gives you forty years of freedom to do what you want with life rather than fifteen.<\/p>\n<p>This table demonstrates the power of profit margin:<\/p>\n<p><img decoding=\"async\" loading=\"lazy\" class=\"aligncenter green-border\" title=\"This table is the single most powerful argument I know to save as much money as you can.\" src=\"https:\/\/www.getrichslowly.org\/wp-content\/uploads\/the-power-of-profit-margin.jpg\" alt=\"[The Power of Profit Margin]\" width=\"800\" height=\"930\"\/><\/p>\n<p>Look at those numbers. Let them sink in. Think about the implications.<\/p>\n<ul>\n<li>With a profit margin of 20%, it takes four years of work to fund one year of operations.<\/li>\n<li>With a 50% margin, you save enough every year to fund another entire year of operations.<\/li>\n<li>And at 75%, each year of work funds three additional years of operation.<\/li>\n<\/ul>\n<p>When you choose to spend less (or to not spend at all), you&#8217;re not just boosting your bottom line. You&#8217;re also gaining the time and freedom that would have been required to earn that money. Thrift isn&#8217;t deprivation. It&#8217;s <em>wealth<\/em>.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"frugality-is-not-sacrifice\"><\/span>Frugality is NOT Sacrifice<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Frugality is <i>not<\/i> sacrifice. When you save, that money&#8217;s still spent. It&#8217;s just not spent on a Mercedes or a big house. It&#8217;s spent <a href=\"https:\/\/www.getrichslowly.org\/can-money-buy-freedom\/\">buying your future freedom<\/a>. And your <em>present<\/em> freedom. The opportunity cost of starting late, a foolish purchase, or a bad investment isn\u2019t lost income or lost compounding. It\u2019s lost time \u2013 lost experience and lost life.<\/p>\n<p>Ultimately, <strong>work-life balance is about managing the way you use both time and money<\/strong>.<\/p>\n<p>In some cases <a href=\"https:\/\/www.getrichslowly.org\/time-is-more-valuable-than-money\/\">your time is more valuable than money<\/a>, but often its your money that&#8217;s worth more. If a new iPad is worth twenty or forty hours of your life, buy it. Otherwise, do yourself a favor: Delay the purchase. Hold on to that money so you can retire sooner instead.<\/p>\n<blockquote><p>&#8220;Between depriving a man of one hour from his life and depriving him of his life there exists only a difference of degree. You have done violence to him, consumed his energy.&#8221; \u2014 Frank Herbert, <em>Dune Messiah<\/em><\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"<p><img decoding=\"async\" loading=\"lazy\" class=\"alignright green-border\" title=\"Time is money and money is time.\" src=\"https:\/\/www.getrichslowly.org\/wp-content\/uploads\/24676798279_e25f2b78a5.jpg\" alt=\"Time is money and money is time.\" width=\"423\" height=\"500\"\/>&#8220;Time is money,&#8221; my father used to tell me when I was a boy. He didn&#8217;t like how I dawdled with my chores. I didn&#8217;t understand what he meant back then. To me, <a href=\"https:\/\/www.getrichslowly.org\/time-money-happiness\/\">time and money<\/a> were two very different things. As a kid, I had lots of time but very little money.<\/p>\n<p>Now, as a nearly fifty-year-old man who has written about personal finance for the past twelve years, I get it. Dad was right: <strong>Time <em>is<\/em> money \u2014 and money is time.<\/strong><\/p>\n<p>This notion is the central lesson of <a href=\"https:\/\/www.amazon.com\/dp\/0143115766\/?tag=grsorg-20\" rel=\"nofollow\"><em>Your Money or Your Life<\/em><\/a>, the personal finance classic by Joe Dominguez and Vicki Robin. &#8220;Money is something we choose to trade our life energy for,&#8221; they write. &#8220;<em>You<\/em> are the one who determines what money is worth <em>to you<\/em>. It is <em>your<\/em> life energy. You &#8216;pay&#8217; for money with your time. You choose how to spend it.&#8221;<\/\n<\/p>\n","protected":false},"author":3287,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[476],"acf":[],"_links":{"self":[{"href":"https:\/\/www.getrichslowly.org\/wp-json\/wp\/v2\/posts\/235319"}],"collection":[{"href":"https:\/\/www.getrichslowly.org\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.getrichslowly.org\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.getrichslowly.org\/wp-json\/wp\/v2\/users\/3287"}],"replies":[{"embeddable":true,"href":"https:\/\/www.getrichslowly.org\/wp-json\/wp\/v2\/comments?post=235319"}],"version-history":[{"count":0,"href":"https:\/\/www.getrichslowly.org\/wp-json\/wp\/v2\/posts\/235319\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.getrichslowly.org\/wp-json\/wp\/v2\/media?parent=235319"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.getrichslowly.org\/wp-json\/wp\/v2\/categories?post=235319"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}