time vs. money

What You Pay in Time

Philip Brewer — Fri, 23 Nov 2012 11:24:30 +0000

You probably think about costs in terms of dollars (or whatever your local currency is). I suggest that you experiment with an alternative way of thinking — think about costs in terms of time: The time you spend earning the money. (See also: Track Your Spending. Or Not.)

There's a famous part in "Walden" where Thoreau argues that it's cheaper to walk than to take the train — if both people start from zero.

Thoreau gets up and heads off walking toward your mutual destination. You, planning to take the train, first have to go to work and earn the money to buy a ticket. Given the wages and ticket prices at the time, it's almost a day's pay to buy the ticket, meaning that Thoreau had a good chance of getting there ahead of you, even though it will take him all day to walk.

Plus, Thoreau gets to spend the day on a pleasant walk in the countryside, while you're spending the day working.

Depending on what you earn and how much the ticket cost, the results might be different for you. But the point is that you ought to do the calculation.

You ought to do the calculation for everything.

Of course, things are more complicated than in Thoreau's day. He made a big point that having to buy new clothes to undertake some new enterprise was a danger sign — it would take days or weeks of labor just to get even for the cost of your new wardrobe. He would have been horrified at the idea that having a job meant that you had to buy a car — it takes weeks or months of labor to cover that cost. (And weeks more every year, to pay for registering, insuring, fueling, and maintaining the car.)

He probably would have been horrified at the idea of income taxes, too.

That's the calculation I want you do — for any expense, what is your all-in cost in terms of time. By "all-in" I mean for you to include not just the time you spend working. You also want to include both the time you spend supporting your work habit — your commute, the hours you spend sitting in a stupor after work because you're exhausted, the time you spend on vacation escaping from your work — plus the time you spend earning the things you only need to pay for because you're working — tools, clothes you buy because you need to "look nice" at work, your car, and so on.

A lot of people have thought of making this calculation before me, of course. In particular, it's a central theme in the book "Your Money or Your Life" by Joe Dominguez and Vicki Robin. (I wrote a review of the book for Wise Bread.)

The point is to make yourself a thoughtful consumer. It probably only takes you a few minutes to earn enough to buy a snack, if you do the calculation in terms of your gross pay.

Instead, do the calculation the right way. Figure it in terms of your net pay, after taxes have been deducted. Figure it in terms of the hours you actually spend, including your commute.

Only when you do the calculation correctly do you have the information you need to make an informed decision about whether this or that little indulgence is worth it, in terms of the minutes of your life you spend earning it.

If you try to do the calculation for real, you'll run into borderline cases. Is it a work expense to hire a lawn service? If you work so many hours you don't have time to mow your own lawn, maybe it is. Is it a work expense to go to the hairstylist? If your boss insists that you look your best for customers, maybe it is. Is it a work expense to hire a tax accountant? If your taxes are more complex because of your job — or if you don't have time to do them yourself because of your job — maybe it is. No doubt part of your vacation is pleasure; it's not merely an escape from work.

Don't get hung up on details like that. The goal isn't to come up with the one precisely true number. The initial goal is to be clear in your own mind about how much of your time is spent supporting your efforts to earn money — and how much of that money is spent just to enable you to spend your time that way.

The deeper goal is to align your spending with your values.

How many hours does it take to buy a week's worth of meals? If the answer is what you expected, you're all set. If the answer is a shock to you, then maybe your spending is not properly aligned with your values. Maybe you'd honor your own values better by eating out less. Maybe you'd honor your own values better by eating less expensive meat and more cheap rice and beans. On the other hand, maybe spending the extra hours commuting and working so your family can eat locally grown organic food is exactly in line with your values.

I don't know. I can't know. Only you can figure these things out. I just want to provide this extra tool for figuring them out accurately — think about what you pay in terms of time.

This article is from Philip Brewer of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

What Is Your Time Worth?

Tara Struyk — Fri, 06 Apr 2012 10:36:08 +0000

If a top hedge fund manager takes out his own garbage, you could say that walk to the end of the driveway cost him more than $100,000. When you earn $3.9 billion in one year, your time comes to be worth a lot — even when you’re not working. That’s because time and money have a very tight relationship. If you earn a lot of money through a high-powered career like managing a hedge fund, you won’t have much time for a personal life. And you certainly won’t have to take out your own garbage. Having more personal time tends to mean having less money. That is, unless you earn so much that you can buy it. But while everyone likes to use the quip that “time is money,” especially when they’re feeling impatient, this equation doesn’t always add up in quite the way people think. (See also: That Age-Old Conundrum: Time vs. Money)

What's "Worth" Your Time?

I think we can all agree that time has value. Like money, it’s a finite resource (not to mention the fact that we’re always searching around for more of it). Unfortunately, we often throw it away in the same careless way we might throw around our money, not realizing that they are the same thing.

For example, a lot of people might say they don’t have time to cook dinner, so they pay to have someone else cook it for them in a restaurant. Now, if you’re Mr. Hedge Fund Manager, this is a trade with a lot of value. After all, for someone who makes about 44 million per hour — and that’s assuming that he works 24 hours per day, 7 days per week — paying someone a few dollars an hour to cook for you is a great bargain. For someone who makes a lot less, though, this equation starts to look a little lopsided. The same goes for other things we often opt out of in the name of time, such cleaning the house or making minor repairs on the car. The problem is that if you break your time down in the same way as the hedge fund manager, your hour may not cover what you’re paying the house cleaner or the mechanic. That doesn’t mean paying them to do the work for you doesn’t have value, but it does mean that it’s an expensive transaction, and you have to be careful about how much time you buy this way.

The Cost of Opportunity

There’s another aspect to the time/money equation, and that’s opportunity cost. Opportunity cost refers to the financial impact that one choice you make has on another. So, if you decide to leave work early to come home and spend time with your family, that has an opportunity cost; you gave up the opportunity to earn your hourly rate for one additional hour in exchange for more time at home. You could also consider this in terms of going back to school to gain the skills to earn more money. If you’ve thought about doing this, you probably realize that it’ll cost you more than just tuition, but also the wages you could have been earning if you weren’t in class. That’s opportunity cost, and it also helps determine what our time is worth. So, when you're deciding whether to do some work around the house yourself or pay someone else to do it, opportunity cost can be a way to work out the value of doing your own labor.

Working Out the Value of Your Time

We know that a hedge fund manager's time is worth millions an hour, so be warned — for most everyday people, calculating the value of your time will be a sobering experiment. One way to do this is to look at how much money you made in the last year. Then, consider any expenses you incurred because of your job, such as childcare, transportation, clothing, etc. Subtract these expenses from your earnings.

Now consider how many hours per day you spend to make this money. While you might only spend seven or eight hours per day at your post, you should also factor in commute time, business travel and dinners, and other time you have to spend because of your job. While you may not be paid during these hours, they aren't your time to use as you please, so you have to count them.

Finally, take what you earned (minus expenses) and divide it by the number of hours you worked (plus additional time related to your job). This is how much your time is worth per hour, and chances are it's a whole lot less than you thought you were making. That's not a bad thing, but it does put the value of your time into perspective. After all, if you're really only making $9 per hour, the value of doing more things for yourself rather than hiring others becomes more clear. This is especially true if you don't have the kind of job where you could put in extra hours rather than mowing your lawn.

The Real Value of Time

So does this mean you have to avoid restaurants, fix your own car, darn your own socks, and make your own clothes? Not necessarily. There are two reasons for this. The first is that in the U.S., many people make a lot more than they need to just get by. That means they can afford to buy some time as well. In the Great Depression, when a lot of people were stuck without work, they spent a whole lot of time working out ways to avoid having to buy anything much at all. That’s because they had the time, but no money. Think about this when you decide what services to buy. Generally, the smartest move is to hold tight to what’s most dear; if you have money, you can buy time, and if you have time, you can do more of your labor.

The second reason why we buy time is that spare time has intangible value, while money has a diminishing utility. Once your needs are met and you've maybe paid for a few luxuries, spending extra time working fails to deliver a much more comfortable life. Leisure time, on the other hand, has its own special value. I think we all understand this implicitly when we’re lolling on the couch on a lazy Sunday or spending a rainy afternoon in bed with a book.

The Bottom Line on Time

The question of how much your time is worth is a personal one. Just like anything in personal finance, it involves striking a balance between what you want and what you can afford. Time and money are finite resources. So while we’ll probably always be scrambling for more of both, how we eventually spend them should reflect what’s important to us.

How do you value your time, and how do you decide what to do yourself versus hiring others to do it?

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This article is from Tara Struyk of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Reasons Why I Don’t Clip Coupons

Kentin Waits — Tue, 20 Mar 2012 10:24:10 +0000

People love coupons. According to the Nielsen Clearing House (NCH), an industry leader in coupon marketing and redemption, 78% of consumers report using coupons on a regular basis. I’m not one of these people. Though clipping coupons is usually the first thing that comes to mind when folks think of frugality and thrift, I argue that it’s time to put down the scissors. Here’s why. (See also: Extreme Couponing? 5 Reasons Why I'll Pass)

1. You Usually Have to Buy Something to Get a Coupon

Though some coupons are free or accessible online at no charge, most of them are still found tucked in that old standby, the Sunday paper. I don’t read the paper, and I don’t want to have to buy something in order to be offered the chance to save money. It seems contradictory and is a bit too complicated for my taste.

2. Coupons Attempt to Modify Behavior

Manufacturers want me to save 50 cents on that pint of ice cream for one reason only — to get me in the habit of it. It’s simple. And it’s a claim that the manufacturers and the coupon industry would be the first to admit. Coupons exist to suggest new products and to habituate shoppers to particular products and brands. Then later, at 3:00 in the morning when I need that pint of rocky road in the very worst way — poof! No more coupons. No thanks.

3. Coupons Encourage Over-Buying

Often, the savings that we get from a coupon only applies when buying multiple items. Even though each item may be cheaper in the long run with the coupons, why should I have to buy multiples? What if I don’t end up liking that new brand of coffee? What if that brand of cheese has a bad aftertaste? Who should be the lucky recipient of all my surplus java and Colby Jack?

4. The Savings vs. Time Investment Is Low With Coupons

Couponing requires the regular purchase of a newspaper at best. At worst, it requires joining some coupon exchange club and buying a handy organizer. Then I have to clip, file, and wait for double coupon day. And while I’m at it, I should also join my grocery store’s loyalty program to boost my savings even more. With this much effort, are the savings really worth it? Wouldn’t buying generic save me just as much without all the hassle?

5. Coupons Typically Push Pre-Packaged, Processed Foods

I seldom see coupons for apples or broccoli. Maybe they exist, and I’ve just blinded myself to the entire category of things that require clipping. But it seems to me that coupons generally push convenient, pre-packaged, and processed food. I’m not a health nut, but the last thing I need is another excuse to buy a frozen pizza and Pop Tarts.

Perhaps I’ve overstated my case, and I certainly don’t mean to disparage diehard couponers out there. It’s just that I can’t quite see what all the fuss is about. Don’t get me wrong; I’m all for saving money. I’m just not sure that couponing achieves that goal in the long run. Looking for sales on things I’d buy anyway, stocking up when I find a smoking deal on something I really love, gravitating toward generics and store brands whenever possible — these are my tried-and-true tactics.

Still, NCH says I’m firmly in the minority of shoppers with my coupon-free wallet. Heck, 1.75 billion coupons were redeemed in the first six months of 2011 alone. That’s a whole lot of clipping, and I must be missing something. If you’re serious about couponing, please fill me in — I’m free most Sundays.

This article is from Kentin Waits of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

4 Things to Consider Before Hiring Household Help

Chris Birk — Fri, 21 Oct 2011 16:18:50 +0000

Hiring someone to walk our dogs felt a little weird.

But our hectic schedules and dwindling free time made it a health necessity for our Australian shepherds. We were lucky enough to find a great guy on the next block via our neighborhood Facebook group. The dogs get exercise. Tommy the Dog Walker gets paid. Our guilt gets assuaged.

All in all, it's proved a great investment.

We're not quite ready to solicit a cleaning crew, but there's something to be said for the efficiency and financial efficacy of hiring help when the math makes sense. Hiring someone to clean your house, mow your lawn, or watch your kids can help you maximize your time and balance needs and budgetary concerns. (See also: The 6 Best Lawn Mowers)

For some consumers, considering the opportunity costs can make the concept of hiring help not just palatable, but a sound investment. Even if you’re off the clock, your time certainly has value. (See also: That Age-Old Conundrum: Time vs. Money)

Here are four things to consider when it comes to outsourcing your more domestic demands.

1. Figure Out What Your Time's Worth

This isn’t just a question for entrepreneurs and others who could be making money, crafting a business plan, or otherwise turning their time into future returns instead of scrubbing dishes. What is an hour of your time worth when you’re at home? If you can find someone to work for less than your self-styled rate, outsourcing some of your chores might be a sound investment, even if the return is simply quiet time for family, relaxation, and recharging.

Consider whether your time could be better spent making money, improving your work-life balance, or otherwise tilting the scale.

2. Budget and Prioritize

Obviously, affordability has to be a consideration, too. Subsisting on tomato soup in order to retain your housecleaner probably isn’t the savviest investment, for your wallet or your mental and physical well being. But if the idea of hiring help sounds appealing, consider going over your current expenditures with an eagle eye. Look for needless expenses and ways to curb frivolities.

You can also consider honing in on the most-hated chore. Maybe it’s cleaning the bathroom, walking the dogs, or maintaining the lawn. Depending on where you live and the size of your home, none of these services may break the bank each week, especially if you’re using only one.

3. Forget the Stigma

Deciding to spend money on domestic help or a personal assistant might inspire blank stares or derision from colleagues and even family and friends. There’s no reason to feel guilty, even when someone offers a tactless response along the lines of “Must be nice.” That said, start bragging about your new laundry-folding assistant, and you get what you deserve.

I don’t think hiring a dog walker signifies we’re living on Easy Street, but you can never really gauge reactions.

4. Find Legit Help

Utilize reputable sites and resources or rely on word-of-mouth when it comes to hiring help. Ask for references and, when applicable, insurance and surety bond information to ensure you’re protected against damages or loss. There can also be tax considerations depending on how much you’re paying an individual each year, so check with the IRS or a tax professional. Be sure to set duties and expectations at the outset and evaluate results on a regular basis.

This article is from Chris Birk of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

That Age-Old Conundrum: Time vs. Money

Sarah Winfrey — Mon, 13 Oct 2008 21:00:55 +0000

Have you ever thought, "If only I could do X, it wouldn't matter how much money I made?" Or maybe you've wondered, "Why do I feel like I do so much for so little compensation?" If you've had these or similar thoughts, you're not alone, and you're probably suffering from some disjointed thoughts about time and money.

Believe it or not, it's easy to get stuck living a life you're unhappy with because your time and your money aren't connected in the way you'd like them to be. If you don't think about it, you'll live a life that says you value what the people around you value, or what your parents taught you to value, but that may be a far cry from what you actually value. Here are some competing theories about the relationship between time and money, and some thoughts on figuring out what they mean to you.

Time is money

In this theory, your time is only as important as the amount of money you can make. You focus on a particular task for a particular amount of time and get paid a particular amount of money for your trouble. That money, and nothing else, shows you the value of your time.

Many people hold this as true, though some hold it to a greater extent than others. For many, this is only true during the work day, but personal time is different. But for others, this is a ruling principle of life. If you've ever felt like your personal value depended at all on your salary, that's evidence of this sort of thinking.

It's key to note that this is the principle that most jobs are built around. An employer determines how much it's worth to him to have a person performing a certain task for a certain amount of time, and pays that wage. There are definitely complicating factors, but that's the basis on which salaries are determined. So this is a driving principle in Western culture (and increasingly in Eastern ones).

Time over money

If this is what you believe, then the amount of money you make doesn't mean much to you. You'd much rather have your time to yourself, or at least under your control, than let someone else control it for whatever amount of money they value it at.

Do you work a lower-paying job because you get more days off or control your personal time? Then you might subscribe to this theory. Do you freelance because you want to be able to meet those friends for lunch whenever they're free? Then you definitely value controlling your time more than you value making a particular amount of money.

Money over time

Would you rather work through weekends to have more cash, particularly if you get overtime? Is the stress of major responsibility worth it to you because you make more money when you take it on? If it came down to a decision between a date-night with your spouse and a few more hours that would net you some serious income, would you choose to work?

If you answered "yes" to any of those questions, then there are times when you value money over time. You want cash, whether it's for financial security or so you can buy that new toy, and you're willng to give up total control of your time (and other people's) to get it.

Practically

In our daily lives, most of us subscribe to these different theories at different times. Maybe the success of our weekdays is determined by how much money we make, but that of our weekends determined by how much time we get to spend chillin' in front of the television.

We also subscribe to these ideas to varying degrees. Sometimes, money is important, but only so long as a person can take two weeks of vacation every summer. Or maybe someone wants to stay home with their kids, but they also need to make a certain amount of money to live.

It doesn't matter how you fit these ideas together; what matters is that you know how they fit together for you!

Figuring it out

Ask yourself the questions below. Spend 5-15 minutes answering each one, either in discussion with someone else or in a journal. When you've finished answering, you'll have a pretty good idea as to what you value, how much you value it, and when you value something else entirely.

1. If you had the option to work over the weekend making double-time, would you do it? What if your kid had a big game on Saturday or you had planned a date to the Met? How would you justify your choice?

2. Looking over the last year, how often have you taken vacation? Sick days? Did you ever go to work instead of taking time off because being absent negatively effected your paycheck?

3. How do you look at your wages? Are they never enough, just right, or plenty for your needs? Do you feel like you trade your time for money? If so, is it a fair trade? If not, would you prefer more money or more free time?

If you feel the desire, share some of your responses with us. I'd love to know where Wisebread readers stand!

This article is from Sarah Winfrey of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: