Thursday, July 11, 2013

Time as a Currency

The money-time relativity is actually quite simple.
A friend of mine regaled me with his tale of frugalness when he spent $1 on a tie. I thought that was great, but playing the devil's advocate told me to analyze this a little further. Just how much freedom (or time) does $1 cost or buy?

If we assume a time-averaged annual income of about $100,000, we are able to come to a rate of approximately $48/hr. So if you are spending $1, you will be putting yourself about 75 seconds farther away from financial independence (retirement). Of course, there are so many things being assumed here (taxes, time-value, actual salary, etc.) that I don't even care to bother with because that's really not the point. The point is a shift in perspective.

Rather than looking at how much something costs in terms of dollars, it's a lot more useful to use a currency which is the same for every single person on earth. Everyone has only 24 hours in a day (somewhat), and that is universal for all human beings. If I'm about to spend $100 on an item, I need to be asking myself whether or not that particular item is worth delaying my financial independence (retirement) by more than 2 hours. That's an extra 2 hours I'm working for just that one item.

It's an interesting way of looking at things because you start to think about whether or not that extra $10,000 on a nicer car is worth it when you factor in the gas and other expenditures. Large expenses like mortgages or buying a house can potentially be setting yourself back YEARS.

For smaller expenditures, it also places casual items into perspective. An $8 Blizzard from Dairy Queen would require you to knock out an extra 10 minutes of work. In some cases, these things might actually be worth it. But when there are things which you don't necessary really need nor even really want, it helps to give yourself a reason not to spend.

Semi-related note:
I was walking around Dollarama the other day, and I recalled how I used to walk around stores like this looking for things to buy. I was always wondering, "hmm, I wonder if I can buy myself some happiness with any unnecessary purchases." However, I now have a different thought strategy. In a certain way, the consumer/producer dynamic can be viewed as a zero-sum game. And in that game, all advertisements are out to get you, to steal away your freedom so that the producers can have more of it for himself. Every time I walk into a store now, I have the battle mindset switched on. I find myself spending a lot less because of this, and am actually a much happier person.

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