Money is Time

Financial independence isn’t really about money; it’s about time.

We’ve all heard the expression, “time is money.” When used in a work setting and directed at those who are goofing off it’s an appropriate admonishment. For those who fail to recognize money as a tool, however, this expression epitomizes the attitude that any leisure activity is not only wasted time, but also a wasted opportunity to make money.

Leisure time can be very productive, especially when it is used to better our health, strengthen our relationships, or simply to recharge. When we recognize that money is a tool, we don’t need to feel guilty about taking time off from money-making. As Aristotle said, money-making is not a goal in itself. It is a means to an end.

In many cases time does, indeed, equate to money. Just as often, if not more so, the reverse is true: money is time. Whatever we do to make money requires time, and time is more valuable than money because it is the one commodity that we can never replace. Time is a non-renewable resource. Once we trade it away to do things, like make money, we can never get it back.

For those of us who enjoy what we do for a living, and hit the floor with enthusiasm when the alarm goes off in the morning, we may not mind trading time for money because we don’t envision a better alternative. We would most likely choose to do the same thing whether we were paid or not. More of us, however, would rather be doing something other than what we do to bring home a paycheck.

Regardless of whether we race out the door in the morning or reluctantly drag ourselves out of bed, as long as we are dependent on a paycheck we are trading our time for money. That is, we are trading present time. With our spending habits, on the other hand, we are trading future time.

Each time we make a purchase we are trading future time to pay for that item. We will either have to work longer to pay off the debt we incur, or we will forego the opportunity to save the money that we’re spending, and delay financial independence. And being financially independent means we are no longer required to trade our time for money, although we may still choose to do so.

It’s relatively simple to quantify how much present time we are trading for a purchase. Let’s assume that we’re considering buying a brand new 6D 144-inch television with holographic projection and direct-to-tympanic membrane sound for $2,000. Our current 48-inch television is only a couple of years old and in excellent condition, but this new TV is the latest and greatest gadget that is popping up in living rooms throughout the countryside. If we’re a typical worker in the United States who takes home about $20 per hour after taxes, we will have to work 100 hours to pay for that new television, more if we use our high-interest credit card for the purchase. That means that even though we already have a very decent television, we are considering trading two and a half work weeks to purchase a better one.

Perhaps we’ve already budgeted and saved the money for our membership in the gadget-of-the-month club. In this case, the television is already paid for and we’re trading future time because we are choosing to forego saving $2,000 in favor of installing a video entertainment system that will spark the jealousy of every self-respecting neighbor.

Calculating future time is a little more complex because we have to take into account the time value of money — that is, we will direct our $2,000 to an investment that earns interest or appreciates in value. Managed properly, those earnings will then earn interest or appreciate in value. This will continue, on and on, until we turn our investment into cash.

Let’s assume that we plan to work another 20 years and our investments are currently earning 5% each year over and above inflation. If we invest that $2,000 instead of spending it on a vision-exploding, ear-shattering television, we would have another 5,300 of today’s dollars in our nest egg after 20 years. That’s the equivalent of 265 hours of take-home pay, or 265 hours of future time.

If we did this, say, for just one purchase every year for the next 20 years, using our saved money to purchase that not-quite-necessary luxury item, and recalculating the time value of money for each different period, then we would have spent nearly 3,700 hours of work time. Another way to look at it is that we’d have to work for money for nearly another two years to pay for those gadgets.

This is not to say that the gadgets aren’t worth another two years of work time, or that we should give up all of the things that make our lives more interesting. For many of us, the ability to purchase extras for ourselves and our families makes work life more palatable, especially if we can afford to buy them without burying ourselves in debt. There is no compelling honor in spending our lives working endless hours, and there is no distinctive shame in using some of our earnings to make life more enjoyable.

The important thing to remember is that we’re giving up time in exchange for dollars, and when we use those dollars for purchases we are also trading days, weeks or even years. If we can integrate this perspective into our financial lives, it will add a new dimension to our decision making and allow us to be better prepared when the future arrives. Financial independence isn’t really about money; it’s about time.