What's Worth More: The Value of Time or Money?Submitted by Castlebar Asset Management on January 29th, 2018
Do you know the one action that will help you build a solid foundation for financial independence?
It’s nothing complicated or tricky. It’s simply developing a savings habit and saving money each and every month (preferably 20 percent or more of your income).
Of course, you need to do more than just save. But it’s the most basic step you can take -- and should be a priority as you move through your working years with a goal of growing wealth.
Clearly, saving is important. (Duh, right?) Even so, there’s a potential pitfall to avoid here.
Money Isn’t the Only Valuable Resource to Use in Life
If you prioritize saving money over everything else, or at the expense of other parts of your life, you may end up with more cash in the bank. And you could be a lot less happy.
It’s all about balance. Saving money isn’t everything; it’s not the end-all, be-all. And it’s not necessarily the most valuable resource you have.
A study published on the Proceedings of the National Academy of Sciences showed that for most people, the value of time is greater than money.
And as the New York Times reported, spending money to buy back some time can provide you with even more happiness than simply watching your savings or investment account balance go up.
Living Frugally Can Make You Rich, But It Has Its Limits
Your path to wealth is based on frugal living and saving every single extra penny you can find in your budget, don’t take this as a criticism. Without frugality, you likely wouldn’t be where you are now.
But like all things, frugality can be taken to the extreme. If being frugal causes you to lose time that you could be spending with loved ones or doing something you enjoy, you could end up feeling less satisfied with the overall quality of your life.
Outsourcing tasks to gain the higher value of time can be difficult for some, but there’s only so much that money alone can do for you.
Time, on the other hand, is a limited resource. It’s hard to make up for it when it’s gone.
Yes, Spend Your Money -- Just Know How to Leverage It
This isn’t carte blanche to empty your bank account on whatever you want to buy. The key point? Using money as leverage to gain more time can help us buy happiness.
The studies and articles mentioned above explained that people who spent money on time were happier than people who spent their money on material things.
If you go out and spend mindlessly on things and stuff, you’ll likely be worse off than if you had taken your savings to an extreme. You won’t have any more time to enjoy -- and in fact you may have less.
Getting stuck in an overspending, paycheck-to-paycheck cycle can extend the time you have to work. It limit your options for how you can use your time because you’re obligated to keep working to earn money to pay for all those material possessions that don’t even provide you with real happiness.
It’s important to find balance and focus on strategies that give you more time in your day in exchange for your hard-earned dollars.
Know the Value of Time, and Use Your Money to Make More of It
So, how do you actually do that? What does “leveraging money to create time” look like?
To start, consider how much an hour of your time is worth to you. Determining your hourly rate is a useful framework to use to help you decide if it’s worth using money to free up time.
This calculator can help you calculate an hourly rate based on your salary.
Let’s say you make $50 per hour. In that case, anything that costs less than $50 per hour might be worth paying for if it means you get an hour of your valuable time back.
Not sure where to apply this information? Think about services like hiring a housecleaner. Cleaning the house is a time-consuming undertaking, especially if you have kids.
The dishes never seem to stop from piling up, the bathrooms need regular attention and stuff often piles up in places where it doesn’t belong.
Hiring a housecleaner typically costs between $25 and $35 an hour. In this case, since you value your time at $50 per hour, this might be a worthwhile spend.
Or, depending on how big your yard is and what you want to be done, you could hire a lawn care service for anywhere from $30 and $80 per visit.
Household chores aren’t the only tasks that you might want to get rid of. If you own your own business or work as a freelancer, you might consider hiring an assistant, a bookkeeper, a CPA or financial planner, or other professionals who can perform necessary services better and faster than you can do on your own.
Think about the tasks that you dislike doing the most, take up the most time, or take you away from focusing on more important things. Those are the ones you’ll likely want to outsource first.
These are just a few ideas and examples for small ways to gain a little more time in your life. But you can also apply this concept to the big picture.
For example, investing your money now can be used as leverage to buy you more time in the future. The sooner you start building the wealth, the more your nest egg can take advantage of compound interest and grow exponentially.
Cut Back on Stuff, But Budget for Ways to Earn Back Time
Outsourcing tasks and to-dos can free you up to focus on what matters most. Whether it’s your business, your family, or simply the value of time you get to spend alone, spending money to buy time can improve your quality of life.
In the end, it’s important to consider what works best for you. There might be some time-intensive tasks you actually enjoy. Don’t spend money to get those off your plate if you like having that on your to-do list!
And there may be times when you truly do need to buckle down with your finances and focus on saving as much as you possibly can.
The key is to seek balance and avoid getting permanently stuck in an extreme. When you’re feeling conflicted, remember that there are multiple ways you can make and plan for money.
We all only have so much time, and when used wisely, our money can help us gain more access to it.
Disclaimer: The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.