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“Wanna come ride the subway with us?”
“Nah, I’ll just catch a cab.”
Are words I have literally never spoken in my entire life. My friend Nat, however, not so much. She takes taxis constantly, even though she has a transit pass. Besides, why would she bother waiting for a subway that takes a whole 30 minutes to go home, when a cab ride only takes 15 minutes? Saving 15 minutes is well worth the extra $25 cab fair, right? “Time is money”, she chirps, as if that hand-wavingly justifies her decision.
Now, the statement “Time is money” is often thrown around as justification for spending money on convenience. That being said, “Time is money” isn’t wrong. Money IS a proxy for time, after all. It’s just not the whole picture, and the problem is if you just use “Time is money” in isolation to justify your spending habits, you end up making some bone-headed decisions.
Like Nat, for example. So let’s break this shit down, shall we?
Nat makes $75,000/year or $35/hour as a business analyst. Not a bad salary, so what’s wrong with spending some money to save time? With a relatively demanding job, she wants to squeeze out as much time as possible. Besides, since she makes $27/hour after tax, she can easily earn that in less than an hour. No biggie, right?
That’s how a normal person thinks. But not Revolutionaries. Revolutionaries know that becoming FI means being able to exchange our hard earned money for time.
And in this case Nat is not saving herself time at all. In fact, she’s losing it.
How?
In order to passively generate the extra cab fare, Nat would need to add an additional $625 to her portfolio. That’s $25/year x 25, using the 4% rule. (Dividing by 4% is the same as multiplying by 25.)
And assuming a $27/hour after tax salary for Nat, that’s $625/$27 = 23 hours. So every time she spends $25 for a cab ride to save 15 mins, she has to work an extra 23 hours to pay for it!
Working an extra 23 hours (or 3 days) to save 15 mins?! Um. Okay.
But here’s the even bigger issue. Out of the $27/hour Nat makes, she needs to pay rent, food, phone bills. All those “needs” eat up 70% of her take home pay, leaving 30% for her “wants”. This means only $8 will be available for her cab rides. This means to save $625, she would need to work 78 hours (or 10 days)!
And that’s not all. Nat doesn’t just take cabs once a year. She does it every time she goes out with friends. This ends up being 4 times a month, which ends up being 48 times a year.
That’s an extra $1200/year just on cab rides! This means an additional $30,000 needs to be added to her portfolio to cover this cost. That’s 3750 hours or 1.8 YEARS of extra work just to pay for cabs!
And that’s what happens when you simply say “Time is money.” You end up accidentally costing yourself even MORE time and MORE money down the road.
Why is that?
Because there’s an additional question that nobody ever talks about, and that question is “What kind of Time?”
Because Time spent being miserable is not worth anything. An extra year in a corporate prison is the same amount of time as an extra year travelling the world, but is one worth more than another? Hell Yes!
Every money decision you make is basically buying some form of time. But the difference between a regular person and a Revolutionary is that we understand the value of buying the right kind of time.
Nat saved 15 minutes, at the cost of an extra 1.8 years of misery. Was that a good deal? She might say yes. The rest of us would say NO!
And here’s where we break rank with the rest of the “Frugality” blogs when it comes to spending money. I’m not one of those people who sit on their pedestal and just DISAPPROVE of every spending decision people make. “Hey, stop spending! Are you spending? You’re spending aren’t you?”
I say: Spend money when it buys you Time being Happy.
Want to buy a new Xbox? Go for it! As long as you get many hours of happiness out of it, without needing to work an insane number of hours to pay for it, why not? Want to splurge on that fancy vacation? Sure! We sure as Hell did when we were working, and we don’t regret a single Margarita.
But there are certain expenses that make absolutely NOBODY happy. Is a 15 minute cab ride in of itself fun? No, it’s not! It’s stressful trying to hail one down, you get stuck in traffic, and God only knows what the last people were doing on that leather. And for that expense that doesn’t increase your happiness, you pay for it with 1.8 YEARS of corporate servitude. Or put another way, NOT spending that cab fare money buys back 1.8 years of traveling the world. Which one would you rather have?
Spending money is fine, but not like this. Cab rides are just a shitty deal. And there are TONS of these expenses in everyone’s daily life. Let’s take a look at a few of Nat’s.
Bank fees
Quick show of hands. Who LOVES paying bank fees? Anyone? Yeah, that’s what I thought. Bank fees make precisely NOBODY happy (well, except the bank, but fuck THOSE guys). And with the advent of no-fee checking accounts everywhere, not paying them is simply a matter of filling out a few forms and transferring your money over.
At $290/year, that’s $7250 to be added to the portfolio. Which ends up working out to 906 hours or 5 months of extra work.
VIP Cable Package
Some people might enjoy the Hell out of their cable package, and that’s fine. But Nat doesn’t even watch hers! She comes home from work exhausted and binge-watches Netflix. So what’s the point of paying for this?
That’s an extra $100/month or $1200/year. That works out to $30,000 extra in the portfolio, forcing her to work an extra 3750 hours or 1.8 years!
Pointless Gym Membership
Again, not all gym memberships are bad, but one you don’t use is definitely bad. Nat’s situation is even more bone-headed because she spent all this money buying a condo, and the condo has a gym in the building! So she has a free gym, plus a private gym membership, neither of which she uses because she’s too busy at work to pay for the gym membership she doesn’t use! ZUH?!?
$100/month, $1200/year, another 1.8 years tacked on.
Paying for flights instead of using frequent flyer miles.
There are so many credit cards out there willing to throw welcome bonus miles at you that simply by paying attention and filling out the occasional form, you can accumulate enough miles to cover your vacation flights easy. We saved $6000 travelling the world by doing this.
Using frequent flyer miles saves her as much as $1000/year, so by not doing this, she requires an additional $25,000 in her portfolio or 3125 hours of work/1.5 years.
| Activity | Cost (per year) | Portfolio needed to support it | Extra years of work |
|---|---|---|---|
| Cab rides | $1200 | $30,000 | 1.8 |
| Bank fees | $290 | $7,250 | 0.4 |
| VIP Cable Package | $1200 | $30,000 | 1.8 |
| Pointless Gym Membership | $1200 | $30,000 | 1.8 |
| Full-price flights | $1000 | $25,000 | 1.5 |
| Total | $4890 | $122,250 | 7.3 |
By making these 5 minor changes, Nat can reduce the portfolio needed to retire by $122,250! Which means she can retire 7.3 years earlier than she normally would! And what does she sacrifice? Nothing. The only thing she’s done is cut out spending which gives her ZERO happiness, so this is complete, 100% upside.
Again, we are not the Frugality Police. Frugality is not the point. It’s about realizing that every dollar you spend is used to buy Time Being Happy, and that you want to get the best deal possible in every purchase you make.
If something doesn’t add ANYTHING to your happiness, get rid of it. You won’t miss it (since you didn’t care about that thing anyway), but you’ll find yourself buying back YEARS in Early Retirement that WILL make you happy. Like Nat, you may even realize how easy it is.
What are some things you can get rid of that doesn’t add to your happiness? How much sooner will it get you to financial independence? Chime in below!
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I’m going to mull over the math. But first,
You: Wanna come ride the subway with us?
Her: Nah, I’ll just catch a cab.
Me: Um, I’ll walk/bike. [too cheap to take the subway]
So mostly I’ve had to figure out when I really need to spend money to save time, and be less of a jerk, instead of overspending. On the upside, I’m in better shape financial and health-wise, but not mentally. It’s no fun calling the spending police *on yourself* your whole life.
Fantastic job on the subscribers! When you write your FIRE book (you’re writing that book, right?), I’ll be buying it, and so will your hordes of fans. <3
Ha ha. You rock. I usually hear arguments about spending MORE money, not the opposite. Like you, I’ve been known to call the “spending police” on myself every now and then.
Thanks for the vote of confidence! We would love to write a FIRE book. The hard part is standing out from all the existing FIRE books out there…maybe we’ll add some flamethrowers and robots in there. Everybody likes robots right?
That might be the first time I’ve read an article on finance that actually gives me access to changing my behavior. you’re definitely on to something here…
What I got from this article is very interesting….it seems to be all about shifting the way that certain kinds of spending money occurs to me…
For example, when spending $15 on a cab ride occurs to me as sort of “prison sentence” to another 1.8 years of corporate servitude….well! now that give me cause to pause, reflect, and…to possibly think of better things to do with that cash.
It’s like what I tell people about losing weight. It really doesn’t have much to do with self-discipline….but with shifting the way that certain foods occur to you. For me, foods like bread and donuts actually occur as poisonous…so, it’s not a big deal for me to avoid that stuff. It doesn’t take a great deal of coaxing to avoid eating poison…!
You are spot on. Shifting your mindset is very powerful stuff. I could do all sorts of mathematical calculations and show logic, but people will only be convinced if a behavioural change helps them achieve a goal they want.
Hopefully this will help you achieve yours 🙂
It’s not that a single cab ride costs 1.8 years, not or even the $625 claimed at the beginning of the article – I said “uh?” when I first saw it. What matters here is the recurrent costs. The habit of getting a cab 4 times a month costs you 1.8 extra years, given her hourly wage. A single purchase costs you just its price 🙂
This is an eye opening way to look at it! I hear that time is money argument all the time, but it’s amazing how you point out how this “time is money” argument is actually costing people more time! Myself, I’ll take the bus or bike everywhere I go.
Really great point as well about the pointless gym membership that no one ever uses. Go hop on a bike and get some exercise for free, is my opinion.
I think this is why gyms like to offer January and Feb discounts. They know lots of people will sign up because of New Years resolutions but never go.
Biking is one of the best forms of exercise there is. And it gets you where you want to go, saving you time and money! The only challenge is the frigid Canadian winter.
“Frigid’ isn’t really as much of a problem as one would think with the right layering. The only real difficulty is how clear the roads are. Most years, there are only a dozen or two times that I have to resort to transit instead.
Nice! I guess I need to be less of a wimp and do layering properly. For now the plan is escape to warmer climates every winter so I never have to deal with the snow again. MUAHAHAH!
I’ve definitely heard the “time is money” argument for excessive spending before.
A lot of times these people even try to use math to justify it even further. “My time is worth X per hour, and using this service is costing me so much less than X to save time”
Which is what I call “bad math”… while they may be making that hourly rate 8 hours of the day, they certainly aren’t making it 24 hours a day, 7 days a week.
Other than 40 hours a week they’re making $0/hr, sitting on their ass watching TV, because they’re too tired from the day job to go get another part-time job.
Take for example your friend Nat – She’s actually earning closer to $11/hr on a 24 hour basis. Her cab fare cost? $100/hr.
So true! That’s an even better way to look at it!
good point!
that’s why I advocate for expense-thinking: http://www.bravenewlife.com/01/changing-perspective-income-thinking-vs-expense-thinking/
When we take your approach (24 hour basis), we could modify it a bit to turn into weekly basis because of the 2 days of the weekend that you don’t spend working. Furthermore, you’re counting with the gross ($35) hourly rate – you should better take the net value ($27).
So the math: 27*8(hours)*5(days)/168(hours per week)=$6.4 hourly rate, on a week basis.
So she has to work roughly 4 hours to save that 15 minutes…
Your examples are so few… This blog has forced my wife and I to examine literally every aspect of our finances and the savings we came up with are mind boggling.
Buy coffee every morning? – Make your own and bring a mug.
Buy expensive pet food? – Make your own RAW pet food (much cheaper)
Buy deodorant, skin lotion etc? – Get some beeswax and coconut oil and make your own.
Car/Home insurance? – Calls other insurers, they’ll compete for your business.
Need your Lotto ticket fix? – Get into a pool at work.
Gas in your car? – Fill up on Sunday evenings when the price is typically lower.
Buy a lot beer? – Make your own? or learn how to moonshine (did I just say that)?
Loan Interest? – Shop around at every bank and see who’ll give you a lower interest consolidation loan. You can save hundreds every month this way.
I can go on and on, but there are literally dozens and dozens of ways to save money. One of the First questions on this blog was “God, why were we so spendy back then?…” that pretty much sums it up.
Everyone can find ways to lower their monthly costs, you just have to look, and not even that hard.
I’m going to refer my friends to you the next time they complain about not being able to save money.
Tell me more about your homemade deodorant?
Car insurance? Why single it out – put in the “total cost of transportation’ (i.e. capital cost, insurance, gas, parking, maintenance) and then compare alternatives….going back to the original ‘I’ll take a cab instead’ analogy, I did the math of owning a car versus taking a cab anytime I ‘needed’ it once, and rather startlingly, the cab still won out over the total cost of car ownership.
Of course, bike/walk/transit/carshare and/or rental still won out over that, but the math of “I can afford to be lazy and luxurious S.O.B. and just cab it instead” was an eye-opener 🙂
All your extra years of work math doesn’t work, because when you think about investing you are dealing with compound interest and that sum builds much faster then 7.3 years of extra work.
Compound interest on what? If you don’t save that money to invest in the first place, there’s nothing to compound.
Investing has been taken into account.
A recurrent expense of X per year forces you to accumulate 25X to afford it FOREVER since you invest that 25X and take out 4% every year which is X.
You guys might want to consider using http://www.sendy.co to do your emails. It’s a one time investment for an email software, and it’ll last you a lifetime. Just get past the hurdle of installing it on your server and you’re set instead of paying Mailchimp monthly. (I’m not affiliated with them in any way)
Awesome! Thanks for letting us know. We’ll check it out.
Interesting way to look at it. I like the way you think.
Thanks, Tommy!
haha =) Thanks for the post. As my SO says – you always gotta do the math. Sometimes it goes the other way though too, my SO calculated that I spend more money in calories to rewash (no name) ziploc bags than the bag costs.
Yup. Math rocks!
And you’re right. Too little spending doesn’t make sense either. Unless you absolutely LOVE washing ziploc bags.
I was wondering why you guys weren’t posting anything recently (guess I was one who had my email subscription put on hold 🙂 ).
Yeah, this bugs me too (though not many people take cars around car-centric Raleigh). And with uber as cheap as it is, it’s almost as cheap to uber it as it is to take a bus around here ($2.50 for 2 to ride the bus; $6-8 to uber it to most places between here and downtown). But yeah, those little costs DO add up.
Even the ever so cliched coffee at starbucks. If you love it and can’t figure out how to make hot water percolate through coffee grounds at home for $0.10 per cup, go ahead and drop $2-10 per day on your caffeine addiction. But seriously, you can buy the nicest coffee/espresso machine ever and that fancy $31/lb cat shit coffee and still come out slightly ahead versus starbucks.
I have an in-law that’s kind of stuck in this trap. Too lazy to cook and too lazy to make their own coffee or tea. $.20 for a gallon of sweet tea (a southern classic FYI) or $4 for the same from a restaurant. WHY? It’s literally tea + hot water + sugar. And takes ~2 minutes.
The e-mail subscription issue threw us for a loop. We were like we’re over the limit? Really? When did THAT happen?! *raises eyebrow*
I’m all for treating yourself to a coffee every now and then (or in my case, bubble tea), but do it everyday and it starts adding up. That being said, I think the cab habit, bank fees, etc is WAY worse than daily coffee. The coffee at least gives you a bit of a boost, the cab rides and fees brings you ZERO happiness. Why do it?
I’m really talking about the folks that buy the $4 starbucks every day. There’s a Starbucks on the corner of my street that I would pass by every day on the way to work. Never was there less than 10 cars in the drive thru! Then there are the coworkers that buy one in the morning and one in the afternoon. But can’t afford to contribute anything to a 401k to even snag the company match!
I don’t know if they even enjoy the starbucks, they just can’t get coffee and water to meet together in a hot explosion during the morning before work, so they choose the $4 convenience (if waiting in a 5 minute drive thru line is “convenient”).
All these little costs do matter. The effect of compounding do works wonder.
“they just can’t get coffee and water to meet together in a hot explosion”
Ha ha this is so true. We covet Starbucks so much in North America but in Europe, they just consider it expresso + hot water…or shitty coffee.
I too would like to thank you for writing this post, but from the other perspective. I’ve been reading your blog, as well as Garth’s blog, both of which have pointed out how foolish I am for remaining a home owner. A quick and dirty calculation (more detailed analysis is in the data gathering phase) shows that if I sell the house, I can hand in my notice and be done working two weeks later, as opposed to sticking to my current plan of keeping the house and being done work in 7 years. I’ve been mentally beating myself up for weeks for being such an idiot and resisting the idea of selling it, thus having to work longer. Like really, what kind of an idiot agrees to work for 7 more years when they don’t have to??!! But now, at least, I understand what’s going on. I don’t want to sell it because it makes me happy. I’ve put a lot of muscle equity into those four walls to make them my own and I’m proud of my results. It’s my ‘go to’ place when I wish the rest of the world would go to hell. Financially I might be better off selling it, and I will continue to crunch the numbers, but to the math analysis I will also add the question – will I be happier with or without?
Hey, if you like your job and you like your house, I don’t see what’s wrong with working longer and keeping the house. In your case, the house is giving you Time being Happy. As long as you have financial backup plans in case the market goes down (I know people in Toronto say it will never happen, but that’s bullshit. I never say that about the stock market…I simply assume it will happen and have backup plans in place) or you lose your job, then you are all set!
The key is not to never take risks in life. You can do what makes you happy and take risks as long as you have backup plans.
Good jobs may also turn bad in future. Things are always changing. The only constant is change. It is more prudent to have back up plans in case things turns sour.
What is Garth’s blog?
Really good stuff, FIRECracker. The time vs. money dichotomy is really a circular process, as you’ve noted. We earn money to eventually buy more time, but of course we have to spend a certain amount of money along the way which ultimately costs us time, too.
Yup. That’s why Time being Happy is the most important. Once you get the passive income machine going, you never have to trade Time being Miserable for Time being Happy ever again 🙂
I used to think like that. All thanks to people in my area. That’s how businesses like Caviar and DoorDash became a reality. People think time is money, so they need to work those extra hours to get the stocks, bonuses — promised when review season comes.
Instead of cooking, they order take out, but because time is money, they’re willing to pay $5-7 + tips to have the food delivered to their doors. Mediocre food, but you save an hour! I recall spending $30/day for dinner for several months.
Interesting but true story
https://thebolditalic.com/this-is-your-life-in-silicon-valley-933091235095#.f9rnsbsva
HA HA. So ridiculous but true. Working an insane number of hours to make money to save time so they can work even more hours.
I am always considering my regular spendings from the perspective on how much could I save (and invest) on a yearly basis if I don’t buy certain stuff. The aspect you describe here, is something I’ve never thought about. It was very interesting to read. Indeed small things can add up to something huge, so better think twice. Especially when we are talking about replaceable things, the solution is easy: instead of taxi, take the public transport. Budget airlines take you to one place to another just as well. If you go for a city trip, why pay for the expensive hotel while you’re sightseeing all day anyway? Etc. The problem with a too frugal lifestyle only starts when you deny things from yourself that would make you happy. Such things you are talking about are not penny f*ing, but spending your money in a smart way.
By the way: how many extra years do you have to work to get MailChimp? 🙂
Hey, as much as I like MailChimp, if I find a cheaper, just as good solution, I’ll switch.
Great post.
For some of us, this is just how we have been living much of our lives already. Not sure why, but most engineers seem to be wired this way. I think we are just natural optimizers.
I think you’re right. Engineers tend to like optimizing everything. I wasn’t always like that, but developed this skill over time. So even though Waterloo’s engineering program drove me nuts, it did give me this kick-ass skill 🙂
Interesting article!
What works for my family is to set a weekly budget in Excel and then see if we go over or under that week. It includes all variable costs (groceries, eating out, gas, other).
If we go over one week then we cut back the next week. If we are under budget one week then we don’t mind eating out or going shopping on the weekend but stay within the weekly budget. One tip is to look for grocery store coupons on your lunch. Huge savings and you can stock up.
I find this to be an effective and sustainable method to control your costs.
That’s a great way to do it! if you ever go over, as long as you make up for it the next week, it’s totally fine. The point of a budget is not to never make a mistake, but to track and correct if you need to. I think that’s why most people don’t like budgets, they feel like it’s deprivation, but in reality it’s just tracking and knowing where you’re money is going.
As for me, I would never add in the calculation that looked at 30% of earnings for “wants”. I say this because I’m not *actually* having to work more to pay for the cab ride. I’m actually giving up some other want in exchange for the cab ride. I suspect Nat is doing the same. At least I hope so.
I wish it were the case, but nope. Understanding opportunity cost is very helpful in this case, but most people don’t think about it that way.
Nice practical way to express the basic math beyond the 4% rule 🙂
Every recurrent yearly cost of X forces you tu stash 25X, so you can measure recurrent costs in extra years of work.
Few months ago I read an amazing article on Brave New Life’s blog about switching from income-thinking to expense-thinking that changed my perspective even more: you shouldn’t measure extra time based on your current earning rate but on your current spending rate: http://www.bravenewlife.com/01/changing-perspective-income-thinking-vs-expense-thinking/
Love the BNL article! Thanks for sharing.
Too bad he doesn’t post anymore. Oh well, guess he’s having too much fun running his farm 🙂
Love this. Looking further into the numbers again reveals truth.
I actually had a conversation last night with a friend about travel hacking and he said he was too lazy to spend time looking for, and applying for credit cards to get a free flight.
I asked him if his time was worth $250 an hour, or if that’s what he’ll make on Monday from 9am-10am.
Keep up the great work guys!
Colby
“I asked him if his time was worth $250 an hour, or if that’s what he’ll make on Monday from 9am-10am.”
HA HA HA. Love it!
As a banker, I must say that I COMPLETELY AGREE with cutting bank fees out of your life. Contrary to popular belief, we make it very easy. All the customer needs to do is actually listen to us. I’d recommend talking to your bank about overdraft protection (NOT overdraft coverage; that,snot bad, just different) and about putting you in an account that offers everything you need with the lowest minimum balance necessary to avoid fees.
I have a friend who was a bank teller at the same time I was, and she would take a cab to work everyday. I’ve only done so a handful of times when I was running really late. Other than that, I either take the bus or a nice 90 minute walk. It doesn’t matter that I’m the branch’s sole licensed financial advisor; I’m not going to act rich if I’m not just because my trike makes people think I’m rich.
Great article on the time value of money, and what these extra charges do to our life savings. I need to cut a few things out too. I’m a sucker for Chipotle, even though it’s very expensive.
Sincerely,
ARB–Angry Retail Banker
Wow. A banker who agrees with cutting fees?! You are a purple unicorn!
Oh man, Chipotle. I ordered a burrito from them one time and it fed me for a whole week. The weekend was extremely NOT fun, but I would probably do it again.
I view time not spent saving money, as time I would otherwise waste. Sure, if I spend a little extra time doing something to save money, I might delay an episode on netflix. Whoopty doo. No big deal at all.
Second, don’t get me started on the unused gym membership. Wow. That’s why I bike commute instead. It makes me exercise daily without thought. I don’t do it to save money on my car, although that does marginally help. I do it mostly for the free gym membership. $830 for the absolute best bike you will ever own without any maintenance (I do have to inflate tires though), or that much for 9 months of a gym membership I will rarely use. Drive to the gym, work out, drive home. Wow, that would be exhausting. No thanks.