The Time Value of Time

Morgan Ranstrom |

One of the most important things we consume in our lives is time.  Admittedly, it sounds crass to say we ‘consume’ time, but to heck with it – we already ‘kill’ it and ‘burn’ it, we might as well be a bit more intentional about how we ‘spend’ it!  Most of us barter time for money.  More money, in many cases, necessitates more time.  This can be as simple as having to come into the office a couple Saturdays a month or being available by email after traditional work hours.  It can also mean taking on another job or project to earn a little extra income.

In many cases, putting more time in for financial gain is worth it.  

However, the question we need to ask ourselves is whether we are working to sustain our current lifestyle, the financial equivalent of running in place, or if the time we are putting in is an investment in a better or more sustainable financial future. 

In this sense, our time buys our money.  Thankfully, however, that’s a two way street, and, ultimately, our money can buy time. 

In fact, beyond a certain level of sustenance and financial security, time might be the most important resource that money can buy. 

This is a concept I call The Time Value of Time’ which, of course, is my incredibly witty play on the ‘time value of money’ concept, the idea that money compounds over time at a given interest rate or rate of return – essentially earning interest on the interest over a period of years. (I say incredibly witty because anyone who knows me will tell you that I believe I am incredibly witty. Whether or not they agree is still up for debate).  Albert Einstein is often credited with saying that the time value of money is the ninth wonder of the world.  And with good reason as its powers are truly magnificent to behold when patience and a long holding period meet a decent rate of return.  This anecdote about Benjamin Franklin from the Philadelphia Inquirer is a good primer on the concept and what it can do (h/t: My Money Blog).

However, just like Benjamin Franklin in the link above, at the end of the day you are not saving for money’s sake.  

You are saving for something else – time with your grandkids, time to sail the world, distraction-free time, or maybe just time to be free of financial anxiety.  

In his case, Mr. Franklin was saving to endow the cities of Philadelphia and Boston with a future (100-200 years in the future that is) benefit and that is perfectly fine too.  Many individuals seek to leave a monetary legacy to their favorite non-profit, research organization, school, or religious community after they pass. 

In other words, your savings and your investment portfolio have a function, and the purpose of the ‘time value of time’ concept is to personalize that function.  

To give an example of the ‘time value of time’, many individuals and families who aggressively save a large portion of their income and limit their debt usage have ‘bought’ the opportunity for a sabbatical, an early retirement, a pre-paid college education for their children, or, simply, a more financially secure retirement.  Any way you look at it these are ultimately investments in time.  Similarly, when a couple decides that one parent should be a stay-at-home mom or dad, they, as a couple, are investing in time with their kid(s).

It is easy to fall into the trap of thinking of our savings as some vague notion of financial assets.  However, a more complete picture offers the vision of our savings and investment portfolio as investments in financial freedom, future entrepreneurial endeavors, the ability to do more service-oriented work, and, underneath it all, time.  In this sense, money becomes a positive catalyst for unlocking our dreams and goals, rather than just another facet of life that stresses us out.  Re-phrasing the ‘time value of money’ concept, which is the mathematical basis for much of what we do in financial services, to the ‘time value of time’ makes it more approachable and understandable to people.  

You aren’t saving to amass a fortune, you are saving to amass a fortunate life full of time well spent.  

For us as individuals, time is a limited resource, and we simply do not have the ability to know how much we ultimately have.  To that end, it is imperative that we mindfully go about spending our time in the present while also being conscious of how we can save up for even greater future allocations of this precious resource.

If you re-imagined money in this way, would it change the way you think about savings and/or your investment portfolio?  Would you save more aggressively to invest in time or your vision of financial freedom?  Does it make you consider the inherent potential in considering how you truly want to be spending your time, and how you can use your present and future resources to get there?