Trent Hamm, author of the Simple Dollar blog, wrote a post about the ten lessons he has learned about money. Each of these ten lessons are golden. One of them leapt out at me though. Hamm suggests that you think of your purchases in terms of time rather than money. Here is how he puts it:
“Time is the one truly valuable resource in life. No matter how hard you work, you can never earn more of it. Money itself is just a way to measure time. You get a certain amount of dollars for an hour that you work, and then you trade those dollars for some item or experience, meaning that you think that a certain amount of time spent doing work is a fair trade for that particular item or experience. Money is just the go-between to help you translate the time you invest for the things that you want and need.
Because of this, I tend to think of most financial transactions in terms of time, not money. Every dollar I spend, according to the “back of the envelope” math, equates to somewhere around 4 minutes of work. Another way of looking at it is that every time I spend $120, I’m adding another work day to my life, a day where my hours are mostly filled with work tasks and not with things that I enjoy. $120 adds up surprisingly fast in an era of Starbucks and endless entertainment options.
On the other hand, moves I take to save money and spend less work in the opposite fashion. If I can do something that will save $120 over the next year, like adding weather stripping to a door, that means that this coming year (and every year after that), I’m essentially gaining a day of complete freedom.
That kind of thinking really motivates me to take action right now to spend less money. The reason is that right now, I have the sound mind and body to take on a bit of extra challenge. Right now, I can handle a task like installing weather stripping. Right now, I can make the decision to buy store brand dish soap. If I make those better decisions right now, then I’m essentially giving myself the gift of personal freedom at some point down the road. I’m earning a day without work.
I love visualizing those days without work, too. I think about an afternoon curled up in a comfortable chair with a great book on a cold day. I think about several hours spent hiking on an interesting trail in a nature preserve somewhere. I think about gathering several of my friends together to play board games all day while having great conversations. I think about packing a picnic lunch and sneaking off with my wife to some beautiful grassy hill, spreading out a blanket, and simply spending an hour or two together watching the world go by. I think about working on some big ambitious project that I never have time for but which seems so incredibly fulfilling in my head. And I earn those things through being smart with my money.”
This is just another way of using opportunity cost to evaluate a purchase. It is however a little different than the usual opportunity cost analysis. It is different because time is the one resource that is completely limited. You cannot increase your time. You can manage it. You can find ways to earn more money per minute of work. But the time itself is fixed.
Next time you contemplate a purchase think about it in terms of time. How long will you have to work to earn that new purchase? Is it worth it?
Read the rest of Hamm’s post here. It is well worth the time you spend to read it. It will be even more valuable if you implement what he has learned.
Learn how to manage your money, eliminate debt and build wealth in my book, Your Financial Success.
Daniel R. Murphy
Educating people for building wealth, adapting to a changing future and personal development.