Time is your most valuable asset

I started The English Investor so that young millennials have a place to discuss financial independence and grow their net worth. I want readers to understand that financial freedom is more easily achieved by growing your income rather than increasing your saving rate.

Saving is great and absolutely necessary. Without savings, there can be no investing. I think we all agree on that.

I tend to think that some people sometimes go overboard when it comes to savings. Cutting down on restaurants once in a while is ok. Spending an afternoon to amass coupons and travel across town to the only shop that will accept them is a bit much for me. I understand that for some people, it may be a necessity (although transportation costs in this country will probably eat a large portion of your expected savings). But for most people, that is just not true.

When people try to save money, they primarily focus on the amount of money to be spent. It makes after all. Unfortunately, they forget to also take into account the amount of time required to be spent to achieve those savings.

The opportunity cost is rarely only monetary

Every decision has an opportunity cost. As defined by Investopedia, the opportunity cost represents the benefits an individual, investor or business misses out on when choosing one alternative over another. For the math geniuses amongst us, opportunity cost = return of the most lucrative option not chosen – return of the chosen option.

Individual investors tend to be very good at minimizing opportunity costs when focusing solely on the monetary aspect of a decision: if the price is constant, investors will always favor a bond yielding 5% over the one yielding 3%. Plain and simple.

Individual investors tend to do a decent job of minimizing opportunity costs when focusing on the monetary AND time-consuming dimensions of an investment. Investors will – at least they should – require a higher yield from buy-to-let investments due to the hassle of dealing with tenants compared to the yield offered by a standard government bond. In other words, it is acceptable to make less money with the bond because it is a purely risk-free passive investment, which does not require any work and consumes very little time. Managing a rental is another story: it takes time to get good tenants, it takes time to limit risk, and I should, therefore, be compensated for it. At least, that should be the reasoning.

That’s for business and investment decisions. As investors, we look at things clearly and we take the optimal decision based on the available data.

When it comes to our personal lives, it is a very different story. As human beings, we essentially focus on the monetary aspect and are oblivious to the time implications of our decisions.

Individuals fail to incorporate how much time they are wasting when evaluating the costs of an opportunity. The opportunity cost is rarely only monetary as it also involves sacrificing time. It makes no sense to travel across town to a store to redeem £30 worth of coupons. Transportation costs, increased stress levels and wasted time are not worth the coupons. And I am being generous: most people will overspend by the amount of the coupon thinking it is free money. If they do so, they have now incurred a net loss.

When calculating the opportunity cost of every decision you take, make sure you incorporate the time required to carry out that decision (and not just the monetary aspect). How much time you are spending is equally as important as how much money you are spending.

Time is your most valuable asset

When chasing financial freedom, early retirement or even millionaire status, it is easy to lose sight of the end goal. Money is here to serve you, not the other way around.

The reason why most people want to retire early is (i) to spend more time with their family (ii) travel the world (iii) focus on a job or an activity they really like (even for free) or (iv) a combination of those reasons. Very few people increase their net worth just for the sake of being richer. In fact, once people get very rich and realize that life is not that different, they tend to give their wealth away to charities.

The common thread is that financial independence allows you to free up time from your day-to-day job to focus on something with a higher priority. Money is a means to allocate time to your preferred activities. Time is extremely valuable.

Time is your most valuable asset for two reasons. First, it is finite and scarce. Life expectancy is no longer increasing in the UK. Unless science comes up with a brilliant technological leap, life will end as it did for everybody before us. Second, without time, you are unable to focus on those higher priority projects of yours. Those are the projects through which you feel alive and avoid regrets.

Time is, unfortunately, a depreciating asset

The time you have at 80 is not as valuable as the time you have at 23. At least, that’s what markets tell us. There are a couple of reasons:

• While time does not elapse faster at 80, you are slower and need a lot more time to do anything. What you could previously do in 10 minutes now takes you 25 minutes. The marginal return of a minute is lower. In other words, you get less bang for a minute of your time.
• There is a reason why a lot of great start-ups are launched by people in their twenties and thirties. They launch, fail, iterate and launch again. When you are young, you have sufficient time to turn things around. That is less true when you are approaching 80.
• Time is a depreciating asset because it is priced as such by other market participants. A bank is less likely to lend to a 65-year-old than a 30-year-old. This is even true if you have (i) insurance to repay the mortgage should something happen to you and (ii) a higher deposit than the 30-year-old borrower. It is not necessarily fair but this is how it works.
• There is a saying that it takes 10,000 hours to master something. That’s about 10 years give or take. This means you have less time to become as good at anything than the average younger Joe. At that age, your productivity is also unlikely to help you with playing catch-up. Quite the contrary.

There is one caveat to the above. This is mostly the market’s view of your time because you are not expected to make as much or to be as efficient as others. Therefore, there is a discount. To you, however, that time is incredibly valuable as you finally realize that you are running out of it.

Taking corrective actions

Another important distinction relates to productivity. Most people will assimilate a “good” use of time to being “efficient” or “productive.” This is only true to a certain extent and should, therefore, be nuanced.

Yes, not all usages of time were created equal. Some are clearly more beneficial than others. Lurking aimlessly on Facebook for hours is a poor use of your time. You are not making money (Facebook is though), the content is very poor (little original content from your friends, mostly adds), connections are no longer as meaningful (as people slowly move to Instagram).

Going for a walk with your partner and wandering aimlessly is not. Sure, you will probably not increase your net worth. As it turns out, you are more likely to splurge a bit. But you are spending time with your partner and family: do I need to say more?

Playing video games for an hour or two to release the pressure accumulated over a difficult week is also ok. Everybody needs downtime.

The point is that a “good” use of your time is not necessarily productive. Often, it will be. Downtimes and “wasting” time are however also necessary and important. Not everyone is built to continuously function like a robot.

As with most things in life, it will be up to you to recognize when you are spending your most valuable asset in a considerate manner. Over time, your priorities will shift. What was a good use of your time five years ago may no longer be the case today. Changing your mind to take corrective actions is obviously fine.

There are few initiatives that I have been trying in the past months:

• Drastic reduction of all social media usage: I deactivated my Facebook account a few months ago and I feel fine. At first, I missed a few events organized on the platform. Now, my friends just shoot me a quick email to keep me in the loop. I have a Twitter account for The English Investor and I occasionally check out Instagram. I would love to calculate how much time I reallocated to other activities such as blogging. I am quite sure that I would like that number.

 

• Grocery deliveries: I live in London so there is no excuse for not getting groceries delivered at home. I occasionally drop by the local shop when I miscalculated the delivery window but the bulk of my groceries is now ordered online.

 

• Sport: one way or the other, I always try to exercise. It might just be for 30 minutes but I make sure it happens. Besides the feel-good sensation after a sweaty session, I am convinced that I will reap the benefits as I grow older.

 

• Phone: I try to pick up my phone less often. I found myself checking emails and messages without receiving any notifications. It seemed that I was more looking for a dopamine fix from lighting up the screen instead of using a phone for what it’s for, communicating.

 

Your time is worth more than you think

You may have the tendency to think that your time is not as valuable as others. Please change your mind now. First, your salary is unlikely to be a true reflection of the value of your time. There are other factors at play such as the pool of talent, firm policies, demand for a given service etc. Second, when I was a lawyer, I was shocked to realize that my firm charged clients over £700 for ONE hour of my time. You read that correctly. My boss billed over £1,000 per hour. The measure is imperfect – it also depends on the type of work you are doing – but it shows you that people will value and bill your time. I know that I would be careful about spending £700 in one hour so it makes sense to be equally concerned about spending that one hour. Third, based on market expectations, your time may be objectively worth less than someone else’s but this is not a constant. People switch jobs and nothing is a given for very long.

 

Finally, there is a great blog post by Paul Graham from July 2010 titled “How to Lose Time and Money.” It is short and sweet. The post has a more philosophical take on time and money. In any event, it is good food for thought and you should definitely read it.