I know you will love/hate what we are going to talk about today. It will either frighten you or bring about peace in your life. It will either challenge you or catapult you towards success. Either way, at the end of this article, this approach should effect your financial decision making in a positive way.
The Right Question
You and your son are at a baseball game. Your son see’s a jersey that he wants in the team store. In the past, he has destroyed his clothes and rarely cherishes them. However, this is his favorite player’s jersey he wants. Is the jersey worth the money?
Your girlfriends are going out on the town. They convince you that a night out would be great. The night starts out with dinner as you had assumed, but you thought you were going home after. The girls say they are going to go see the latest Ryan Gosling movie and then meet some guys at a bar down the street from the movie. Are the movie and the drinks worth the money?
You and your spouse are looking into buying a new car. You could buy used, but the new car has this controls screen with the size of an iPad and parks itself. The new car has just the right touch of classiness while being modern with all of the latest features. Is the brand new car worth the amount of money down and monthly payments for 72 months?
Without thinking, you just answered each of these questions wrong. Good job for trying, but you failed miserably. Why? Let me explain.
Just because someone asks you a question, that doesn’t mean it’s the right question that should be analyzed.
It doesn’t matter whether the kid has been good with his jerseys in the past, that it’s his favorite player, or whether you can or can’t afford the jersey. The question you should be asking is whether the jersey, at whatever price, is worth the equivalent amount of time. The same applies to nights out with friends, new car purchases, home purchases, investments (i.e. stock market, bonds, real estate properties, small business startup), etc.
The question you should be asking yourself has nothing to do with money and has everything to do with time.
Because I like tugging at heartstrings, let’s go back to the example of the the dad, the kid and the jersey. Let’s say the average team jersey costs $60 and the dad takes home $20/hr at work. It would cost the dad 3 hours of work to get the jersey. Is that exchange worth it? Is it worth trading 3 hours in a cubicle for 3 hours spent throwing the ball around with the kid instead? Applying time exchange in lieu of dollar exchange changes the complexion of the financial decision.
Let’s say you had an extra $1000.00 sitting in front of you. That $1000 invested with a measly annual return of 4% for 10 years gives you about $480 more than you had 10 years prior plus you still have that principle of $1000.00. Let’s assume $480 is equal to working 3 days. Just by investing that money, you now have free’d up 3 days of your life. You now own 72 more hours of your life.
Is spending that $1000.00 today worth 3 days of your freedom?
Here’s the catch. Maybe it is. Maybe it is worth spending the time equivalent at your cubicle job to go out and party in Vegas with friends. Maybe it’s worth the time equivalent to buy that brand spanking new car. Maybe it is worth making your kid’s day buying that team jersey. That’s not the point though. The point is that you started out asking the wrong question.
The question isn’t whether the item or experience is worth the money. It’s whether it is worth your time equivalent.
Do the Following Right Now
I have one simple task for you today. It will cost you zero dollars and zero cents. Force yourself into a situation where spending money is an option.
Here’s an example:
- Go to Amazon.com and go to any “department” on the left side of the screen that you have any interest in.
- On that department’s front page, there will, more than likely, be something you might have some interest to purchase.
- Now, look at the price of that item.
- Calculate how much time you would need to work to buy that item (i.e. $20 item, making $20 an hour, costs you 1 hour of your time).
- Then ask yourself, “Is buying this item worth the equivalent amount of my time?”
That simple act applied to any financial decision will not only help you analyze how you are spending your money, but, more importantly, how you are spending your time.
Stop thinking in dollars and cents and start thinking in time.