“Wait, why are you taking a cab again when the subway’s right there?”
My friend shrugs. “It’s faster. Time is money, right?”
OK, let me just stop right here. People LOVE throwing around the phrase “Time is money,” usually right before they make a stupid wasteful purchase because they mistakenly believe that phrase is something that gives them an excuse to spend on convenience. If a $20 cab ride saves me an hour on the subway, well my time is obviously worth $20, so go for it!
But that’s not what “Time is money” means.
Unless your last name is Kardashian, we all have to work for our money. A certain number of dollars per hour. We trade time for money when we earn it. And the natural thing to do is say “Well, I earn more than $20 an hour, so saving an hour by spending $20 totally makes sense, right?”
Nope. Here’s how the math actually works.
Let’s say your typical cab ride across town is $20 per trip instead of $3 by subway, so you’re spending $17 each time. But in reality, by taking at least 2 rides a day, every day over the year, you’re actually spending $17 x 2 x 365 = $12,410!
In order to generate $12,410 a year in passive income, that would require a portfolio of $12,410 x 25 = $310,250! JUST to cover your daily cab ride habit!
Now translate that back to time. If you earn $20 an hour, that would require you to work $310,250 / $20 = 15, 512.5 hours. 15 thousand hours, or 1939 days (assuming 8-hour shifts), or 64 months, or 5.4 YEARS!
Is that cab ride worth 5.4 years of your life?
That’s why “Time is money” is actually a very true statement, but not in the way you’re thinking. If everyone saw money as the amount of time required to EARN it, all of a sudden it doesn’t seem like such a great deal to “buy convenience.”
And yet people spend money on convenience all the time. Why is this?
Well two reasons:
Ah, the good ol’ Bank of Mom and Dad. The Bank that’s never closed, and always willing to look the other way for their special snowflake.
Now don’t get me wrong. Hand-outs sound GREAT, on paper. Time might be money, but it’s not YOUR time, so screw it! Someone ELSE has put in the hours to earn that money, but to you it’s just a windfall of cash that you didn’t have to spend a second toiling away at a job to earn.
And this leads to…shall we say…predictable spending patterns.
Take my friend, Tiffany, for example.
Having grown up rich (*shakes fist in fury*), her parents paid her tuition and living costs. How special. What a snowflake. So of course, when it came time to pick a program, her decision process was…questionable at best. I think a dartboard might have been involved.
And surprise surprise, she’s since switched programs twice already and has been in school for 6 years with many more to come. I wouldn’t be surprised if by the time she graduates, they’ll have paid for 3 useless degrees over a friggin’ decade, none of which will likely get her a job. Because THAT is what happens when you don’t have any skin in the game. Because she didn’t have to shell out $150,000 for the 3 degrees, she didn’t have to work YEARS to save up that money. It’s just funny money to her, so she spent it like it was funny money. Makes sense.
Another friend, Karen, still takes hand-outs from her parents to buy shoes and purses even though she’s over 30. I tried to count how many $800 shoes or $3000 bags she has in her condo and I stopped once I hit double digits because I was ready to barf. Wanderer and I did a back-of-the-envelope calculation one night over some bowls of ramen and concluded that she could snort half a gram of cocaine, EVERY SINGLE NIGHT for a year and STILL spend less money than her current shoes-and-bags habit.
That, in case it wasn’t glaringly obvious, is a LOT of Fucking Shoes and Bags.
But because her parents pay for these things, it’s not her money, so spend away, right?
But maybe you aren’t a rich kid, or were born to rich parents. Well, you’re in luck(?) because there’s still another way to screw yourself over when it comes to spending. And that way is…
Studies have shown that by using plastic instead of cash, our brain chemistry actually changes over time. When you pull out money you had to EARN to buy something, the pain receptors in your brain start flashing. It somehow remembers the amount of hours you had to work to earn that physical cash, so you viscerally wince as you part with it thinking about all that toiling those slips of paper entailed. But when you swipe a credit card, that pain is masked. It seems like you’re getting free money—someone else’s money—so WOOOO!
And I may have started talking about credit card debt, but the REAL elephant in the room is mortgages.
The current low interest environment tricks us all into believe that we’re getting money for free and “building equity” by going deep into debt to buy houses we can’t afford. But in reality, unless we actually have the money to cover that debt right away, we are someone else’s bitch—namely the bank’s. They can call the loan at any time or raise the cost of borrowing as interest rates go up.
But it reality, you’re actually just “renting other peoples’ money” (as The GodFather JLCollins likes to say). Not only is that NOT free, you’re actually trapping “Future You” for years running the rat race. This is why debt is a form of modern slavery. By selling us the illusion of buying a life we can’t afford, debt tricks us into spending WAY more money than we would ever imagine spending.
You know how many of my friends are in over $1M of mortgage debt to buy real estate? Almost all of them.
And somehow, they’re all just OK with it. No alarm bells are ringing. Why? It’s not their money. Those houses were bought with debt, so they didn’t bat an eye spending six or seven figures on four walls, a roof, and an unfinished basement.
But you know what? A million dollars is a LOT of freaking money! We saved and invested for a decade to build our portfolio, and would we ever blow it all on a house? Hell NO! Because that million dollars isn’t just money some banker in a nice suit handed to us. That million dollars is a DECADE of woman-hours toiling away at a hateful job, and represents the ability to be Canada’s youngest retiree and never having to work again.
I ain’t trading those cards for a stupid, overpriced house.
But if you’re buying the house with the bank’s money, then somehow spending that amount is TOTALLY normal. And the only one who gets hurt is your future self. But who cares about THAT idiot? Live in the present! #YOLO!
What do these two scenarios have in common? They break the link between time and money.
If money is handed to you, or if that money is financed by debt (either credit card or mortgages), that money becomes funny money. It’s not linked to time, so you have no intrinsic sense of how much it’s worth. And that’s what makes people go nuts with it buying thousand dollar bags and million dollar condos.
Luckily, growing up poor I’ve never run into these problems. And “Luckily” is in quotes because it was no picnic. If I wanted something, there were no hand-outs. Nothing for the special snowflake. Because I wasn’t special, I couldn’t afford to be a snowflake, and quite frankly my parents had nothing to give me. I had to earn it myself or just go without. A nice pair of shoes meant working in a restaurant all summer. A new bag meant selling my soul. And having my own car? BWAHAHAHA *snort* yeaaaaaaah. Not gonna happen.
I was also “lucky” because I grew up without access to debt. When we first came to Canada, it was hard for us to get a loan because we didn’t have any credit history. And not only that, having grown up in China, the idea of spending money you haven’t earned was completely foreign to us. And so my parents drilled into my young brain that debt is bad and only losers who can’t manage their finances need debt. That’s why I didn’t get a credit card until after I graduated from university.
But far from being bitter over my lot in life, I just sat and watched with amusement as everyone around me goes nuts with debt, spending money they don’t have like it was going out of style.
And throughout it all, I’ve concluded one thing: Once you lose the link between time and money, you start making very stupid decisions about money.
That’s why every time we do a Reader Case, we never end it by saying “if you did this, you would have THIS much money instead of THAT much money.” Because money is an abstract concept that people have trouble understanding. If you don’t connect to anything real, money is just a number in a spreadsheet.
But if you connect it to time? Everyone understands that. “If you buy this house, you will have to work for 28 years MORE!”
Now people get it. They think “Hmmmmm. 28 years is a long time. Is this house worth that much of my adult life?”
So that’s the true value of Money.
Time spent in the rat race. You put in the time to earn it, but instead of spending it all and forcing your future-self to toil in a hateful job to continue supporting your lifestyle, you use that money to buy your time back. That’s why FIRE means.
And that’s how Time truly is Money.
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