海角大神

The title of this post is a sentence that appears in bold on page 51 of . In fact, it appears twice in bold on that page.

Money is something we choose to trade our life energy for.

This applies to virtually every financial transaction we make. When we work, we trade our life energy for the money we make. Even when we do things like receive an inheritance or win the lottery (a , by the way), we still had to invest life energy or money to receive those things. Investments, for example, don鈥檛 require an input of life energy themselves, but they do require an input of money, which at some point we had to trade our life energy for.

Now, if you start digging into this, there are some interesting consequences.

First, if you earn $15 an hour at work, you鈥檙e not actually trading an hour of your life for that $15. This is a point I鈥檝e discussed before. In truth, you鈥檙e not earning that $15. Some of it is going away to taxes. Some of it is going toward buying your work clothes. You鈥檙e also working some hours for free, including the commute time and so on. If you start calculating the numbers there, you quickly get down to a rate of $8 or $9 per hour (perhaps a little better, perhaps a little worse) that you actually earn from your job that you get to keep.

At my previous job, I had an on paper hourly rate of about $25 an hour. However, once I started figuring in the additional costs, such as child care and parking passes and good clothes for work, and adding in the additional time, such as time spent traveling and time spent working in the evenings for free and time spent commuting (an hour every day), it added up to a much more painful hourly rate.

Today, I can earn a lot less than $25 per hour and still end up with the same amount of money to keep because most of those expenses are gone. I don鈥檛 have a commute, I don鈥檛 pay for parking, I don鈥檛 have to buy work clothes, I have reduced child care expenses, I rarely (if ever) have to travel 鈥� these add up, both in terms of financial and time savings.

Second, once you start really realizing how much money you鈥檙e receiving for each hour of your life you鈥檙e trading, frugality is cast into a whole new light. Quite often, you find that the hourly return on your time while working on a particular frugality task is better than the hourly return on your time at work (or doing a work-related task).

For me, the magical rate is about $10 per hour. If it鈥檚 less than that (as gardening is), it needs to have some extra appeal for me beyond mere frugality. If it鈥檚 more than that (like turning off the lights before a trip or making our own bar soap), then it starts to become a priority to get it done.

Third, investing also has hourly returns. When you invest, you have to invest some time setting up and following the investments. Thus, investing has an hourly rate of return as well. Sometimes it can even be a negative hourly rate of return over a certain period of time.

Ideally, if you鈥檙e investing a significant amount of money and are using passive investing, the hourly rate becomes fairly large. It鈥檚 this perspective that encourages me to use passive investing techniques (essentially, I pick a fund or two in my retirement or investing account, then set up an automatic investment into those funds and sit back). I might earn a greater return if I was more actively involved, but I鈥檇 be investing significant time to earn that greater return and my hourly rate would go down.

Thus, I would only actively invest if I were having a lot of fun doing it. It would have to bring me personal enjoyment to make up for the drop in hourly rate for the time invested.

Finally, the things I do for fun are altered by this 鈥渢ime is money鈥� perspective. I might enjoy golfing, for example, but to do that, I鈥檓 paying about $20 per hour for enjoyment. I could do a lot of things I personally enjoy more for that $20 an hour rate, so why would I golf?

That $20 per hour equates to about an hour and a half of work for me for that one hour of fun, so that one hour of fun better be a very good hour of fun.

When I start using this perspective, the free and fun things to do in life start to take on a lot more appeal. I could ride my bike to the park with my kids for free. I could play a round of disc golf while there with my wife and my oldest son for free. All I鈥檓 spending is that time 鈥� and I鈥檓 enjoying it. I鈥檓 not spending money doing it (which is actually time spent working).

In short, when you spend money, you鈥檙e actually spending time at work. If you actually earn $8 per hour invested in your job and you buy a $2,000 television, you鈥檙e swapping 250 (!) hours of your life working for that television. Why not buy a $1,000 television and reclaim 125 hours of your life?

If you earn that $8 an hour and buy a $200,000 house on a 30 year mortgage, meaning you actually dump in $400,000 after the interest, you鈥檙e swapping 50,000 hours of your life for that house. Why not live in a $100,000 house and reclaim 25,000 hours of your life? That鈥檚 twelve years of working 52 weeks a year, five days a week, eight hours a day.

Some food for thought this morning.