Saturday, April 7, 2012

Time Vs. Money

There usually seems to be a trade-off between time vs. money.  It is probably not a coincidence that people who have a lot of money are short on time and people who have a lot of time don't have money.  One would think it would be the opposite.  If you have a lot of money, you should have a lot of time on your hands.  But this only happens if you are retired.  If you have a busy job or own your own business, you don't have much time.  But you can't quit your job or business or you might not have enough money.

I think it is good to think about the trade-off between time and money.  Of course, everyone's time is limited, unless technology finds a way to make us immortal.

If you make 100 dollars per hour in your work, it is probably not a good use of your time to clip coupons.  On the other hand, if you make 8 dollars per hour, it probably is a good idea to clip coupons.  There is really almost a sliding scale here.

The more money you make, the more you should make use of the division of labor.  Tiger Woods is better off spending an extra hour with his golf coach each week instead of mowing his lawn.  He can pay someone a trivial amount to mow his lawn (from his perspective), but spending an extra hour with his golf coach could mean the difference of a win or second place finish.  It could potentially mean tens of thousands of dollars.

Even if an extra hour with his golf coach wouldn't matter, he is still better off relaxing or doing a hobby (hopefully not getting into any more trouble) than mowing his own lawn.

For someone making 8 or 10 dollars an hour, they probably should be mowing their own lawn, unless they have another source of income or if they are using their extra time building skills.

For someone making 50 dollars an hour, it would make sense for them to call a plumber for something that would take a couple of hours to fix.  It might make sense to hire a lawn service.  It may or may not make sense to hire a maid.

Again, the more you make, the more you should make use of the division of labor and delegate other tasks.  You are better off focusing on your own work.  However, if you like mowing your lawn and find it good exercise, then do it.  If you want to change the oil in your car by yourself because you like working on cars, then do it.  If it is more like a hobby to you than a chore, then there is nothing wrong with doing it.  Tiger Woods should mow his own lawn if he feels like it is a good stress reliever.

You should also look at time vs. money when you are spending.  If you are spending 15 dollars for a dinner and that is how much you make in an hour, then ask yourself if the dinner is worth an hour at your job.  It may be.  I think it is even more useful when talking about larger ticket items.

If someone makes $30,000 a year after taxes and is considering buying a car that will cost $30,000, that person should ask himself if a full year at work is worth having that car.  It puts it in a different perspective.  It makes you realize how much your time is worth.  If you can buy a decent car for $10,000 and "save" $20,000, then perhaps with good investing (if you invested the money you would have spent on the more expensive car) you will be able to retire a year or two earlier than if you bought the expensive car.

If you are looking for ways to make more and/ or spend less, I would look at the spending side first.  If you cut your spending by 10 dollars, then you save 10 dollars.  But to save 10 dollars by working more, you might actually have to earn 12 or 13 dollars because of taxes.

The time vs. money decision is a personal decision.  But you should at least do a fair comparison so that you know what you are getting.  Maybe an expensive vacation isn't a good idea if it is going to cost you a month's salary.  But then again, maybe it is your dream vacation and a month's salary is completely worth it to you.  Just make sure you fund that vacation out of savings and not by running up debt, because putting it on your credit card without paying it off right away will mean it will cost you several months worth of salary.

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