This is the second installment of this post.
Time vs. Money
One of the main reasons traditional retirement and personal finance advice is so limiting is because it’s based on the false assumption that money is limited. The vast majority of personal finance advice out there is focused on cutting back and spending less and doesn’t acknowledge the simple truth that money is limited only if you don’t try to make more of it.
Money is inherently infinite.
It’s a human invention, and as long as people are helping the economy grow by working, spending, and investing, governments can print more money to keep up. Yes, there is and always has been a massive gap between those who have a lot of money and those who don’t, and billions of people live in places where they don’t have the moneymaking opportunities that those in democratic, capitalist societies have.
But, in theory, there’s enough money in the world for everyone to have all the money they need.
The problem is, many people don’t take advantage of these opportunities and instead accept whatever money they are given — generally whatever their bosses are willing to pay — without considering other ways to make more money. They say they want to make more money but spend all their free time binging on Netflix, gaming, or just wasting time.
This is too bad, because when we believe that money is scarce, we end up sacrificing a great deal of time in order to make and save it. And unlike money, time is inherently limited.
In the book, Your Money or Your Life, author Vicki Robin asks us to ponder a simple but transcendent question: What are the hours of your life worth? What are you willing to trade them for? How much money are you willing to trade for your time?
If we believe money is scarce, we’ll spend precious time trying to save it when we actually don’t have to. We’ll spend hours clipping coupons, driving an extra mile to save three cents a gallon on gas, or hunting for a deal online just to shave a few bucks off our bill.
You can spend over four hours looking for the best deal on a new item only later to realise that the money you saved hardly made up for the time you wasted — time that you’ll never get back.
The same goes for earning money. Every minute we spend trying to make money is a minute we can’t use to do something else — it’s gone forever.
Trading Time for Money
Most people work between 70,000 and 80,000 hours over the course of their careers, but even that doesn’t account for all the time they spend because they have to work. The average Kenyan commutes an hour to and from work each day. That’s about 8,000 hours over the course of a typical career. All told, you’re spending more than a year of your life doing something you wouldn’t have to do if you didn’t have to earn money to survive.
Even these stark numbers don’t tell the whole story.
The average person works 40 hours a week. If we add in time for commuting, that’s about 45 hours. There are 168 hours in a week, so after you subtract about 56 hours for sleeping, that leaves 67 hours.
That sounds like a lot — more than what you spend working in a week — but consider that not all hours are created equal. Studies have shown that we’re most alert and energetic early in the day, but that’s the time we’re usually working. By the time we get off the clock, we’re usually so tired or run-down from working all day and commuting that we don’t want to do anything except sit on the couch. This is why the average person watches 4 hours of TV a day.
Sure, we have weekends, but how often do you spend those running around trying to catch up on all the errands and chores you didn’t get to during the week?
The point is, you are trading the best hours of your week and your life for a paycheck.
I’m discouraging working, I like working. Humans need to work to be happy. But like time, not all work is created equal. There’s a huge difference between working at a job you hate, being stuck at a desk or on the clock for 40 or more hours a week, and doing work you love and are passionate about, on your own time, and having the freedom to do something else if you want to.
The same trade-off occurs when you look at your life as a whole. You typically have more energy and are healthier in your twenties, thirties, and forties than you are later in life. But if you have to spend those decades working for money, then you’re not taking full advantage of this time.
From a financial standpoint, if you gradually save a small percentage of your income over the course of 35+ years, you’re wasting time that your money could use to grow. When you invest money in the stock market, it grows in value over time because (on average over the long term) it earns returns every year. If you’re saving only 5% to 10% of your annual income each year over the course of several decades, you’re not giving your money nearly as much opportunity to compound as you would if you invested more earlier in your life.
You’re wasting time.
Don’t waste time. You are in control. Remember, it’s your time. If you take advantage of opportunities to make more and make the most of your money, you can save a lot more money and correspondingly even more time. Every Kshs. 100 invested today is worth hours, if not days, of your freedom in the future. The more you save today, the more time you buy in the future.
Time Is More Valuable Than Money
Fortunately, the relationship between money and time isn’t strictly linear: If you want to make more money, you don’t necessarily need to sacrifice more time to do so. You don’t have to be limited by your own hours or even the hours in the day.
You don’t have to look far to find examples of people who can work half as many hours to earn twice as much money as someone else, and it’s not always because they’re smarter or more experienced, or work in a more lucrative field. You can even find people who make money by trading very little, if any, of their own time because they’ve invested a lot of time up-front in building consistent long-term income streams.
Likewise, people who invest their money spend minimal time (other than what it takes to set up and manage their accounts) trying to make that money grow because as long as their money stays invested in the stock market, it will grow automatically over time. This is known as passive income because you don’t have to actively do anything to earn it, and it’s the ultimate moneymaking strategy. What’s better than being able to make money doing literally nothing?
Once you reach the point where you no longer have to trade your time for money, you can choose to spend that time however you please. When you have enough (or even just close to enough!), you can quit the higher-paying job you hate to take a lower-paying one that’s meaningful to you. You can explore, grow, give back, follow your passions, and find new passions. You can travel the world, pick up a new hobby, learn a new skill, volunteer — the possibilities are infinite.
The vast majority of personal finance advice out there is focused on helping you maximize whatever limited money you already have. It’s focused on frugality, scarcity, cutting back, and spending less, and doesn’t acknowledge that money is limited only if you don’t try to make more.
Money is unlimited. Time is not. Don’t waste time. Don’t defer your dreams into the future.
Adopted from Get Rich Slowly.