Everyday Economics For People, Chapter 5: Optimizing Time Management
Okay, but wait a minute. There’s actually another dimension here, and that is the trade-off between investing time in researching bargains vs. spending that time working vs. spending that time developing marketable skills vs. leisure. This next section is going to be about how you manage your time so as to maximize what you get from it, and a great place to start is with bargain hunting. Although it is good to have a bias in favor of over-researching rather than under-researching your purchases, there is also a limit to the returns you will get.
For example, if you can buy a pack of gum for 50 cents now, even if you could get it 98% off through an hour of research (not going to happen), you would still only have saved 49 cents. You would have to buy a lot of packs of gum before your savings would be worth the investment of time. As a general rule, if you’re just going to buy a small quantity, then low price items do not warrant much research. At the opposite end of the spectrum, if you are buying, say, a house for $400,000, even saving 1% through good research translates into $4,000, so it is very worth it to invest a lot of time researching.
Most goods will fall somewhere in between these extremes, and you should consider the value of your time and energy when deciding whether or not it is worth it to buy something from your buy list already or continue shopping around for a better deal. Of course, don’t forget that cheap purchases you repeat many times could be worth as much time to research as expensive purchases you rarely make.
But, what is the value of your time? Now we are entering some very strange territory, because we must consider non-monetary things like leisure against monetary things like working for a wage against speculative things like working on your earning potential vs. combinations of things, like working at a job you consider enjoyable. We will do our best.
First, let’s realize that the ultimate purpose of labor is to pay for leisure, and so labor is a trade-off of current leisure for future leisure. This allows us to compare time spent working and time spent in leisure as though they are like variables, where leisure is worth less than labor to the extent that leisure given up now results in more leisure in the future.
This means that in order to maximize your total lifetime leisure, you need to work as much as you can stand to work each day until you’ve saved enough that you would die before you could spend all of your earnings, and then retire. The sooner you can get to the point at which you never need to work again and retire, the more lifetime leisure you get, obviously. So, the goal is to work as much as you can stand until you are able to retire for life.
Now, let’s talk about the different ways that you can work toward retirement. There are three ways: the first is to decrease your expenses, and we just had the whole book up to this point describing how to achieve that — and it uses your time. The second is to increase the amount of time you spend working, and obviously that also uses time. The third is to increase your earning potential, and this also uses time. The fourth is to purchase investments that generate income or value automatically, and this uses money instead of time and work, which is why I said there are three ways you can work toward retirement. This last way is how you can relax your way to retirement.
Alas, if you had enough money to generate enough income to retire without working, you could already retire without working, and you would not be reading this book. So, how do you get enough money to achieve that? You employ the other three methods I mentioned.
It is important that you balance your time across these three appropriately. Each of the three has diminishing returns to scale, so a balance between them is necessary for optimization of time distribution. For example, you could spend all of your time working and no time at all thinking about how you spend money, and then you would just waste all of your money *and* be working all the time. Or, you could spend all of your time working for minimum wage and scraping up awesome deals on cheap things, and you would just end up with an accumulation of cheap junk and a small amount of savings. Or, you could spend 20 years in graduate school developing an array of skills, but never actually start working for pay, and end up with a mountain of debt to go with a fancy set of degrees and no chance of ever purchasing a home. These should all sound familiar to you, because all of these are the traps that most Americans fall into, which is how everyone in the country is in debt despite having some of the highest median incomes in the world.
But, you! Now you have learned the names of these demons, and you have power over them. So, how should you allocate your time among working, bargain hunting, and self-development? The answer will be highly personal to each individual reading this book, but there is a general way of thinking that everyone can apply to find their own answer. The first and most important question is how much money you are making now, and how much more money you could make if you spent more time working. When you think about spending time saving money or investing in improving your income, you have to weigh that against how much money you could make instead just working more now. Often, taking on more hours is the most lucrative way to allocate your time.
However, if you are spending a lot of money, then it is important to take some time to minimize that rather than working. The higher your expenses already are, the more money it is worth to cut it by a given percentage and probably the easier it will be, since higher expenses generally indicate a lot of slush and luxury. Reducing expenses takes time and thought, but it can easily be worth it, even if you have to reduce your workload somewhat in order to have the energy to think about the money you are making.
And, finally, the amount of money you are making now is probably less than the amount of money that you could be making per hour if you were to undergo some training to acquire additional productive skills. If you are already making a lot of money, or if you are already very close to the end of your working career, then it may not make sense to invest in additional income. However, if you are not already making a lot of money or if you still have many working years ahead of you, it is definitely advisable to invest at least some time in multiplying the value of all the future time you spend working.
Think carefully about how you invest your time in self-development. There are almost infinite different ways to invest in one’s self as a marketable laborer, and they all have different costs and benefits, many of which are specific to you as an individual. For example, my sense of smell is very poor and I can turn it on and off at will, so there is less of a cost to me to work at a job that stinks horribly. If I were to develop the skills to work that job, I would enjoy a higher benefit-to-cost ratio than most people working that job, and therefore probably a higher return on my investment of time. Somebody very skilled at memorization will have to invest much less time and effort toward studying medicine or law, and will have a much higher probability of graduating on time or early, and working in the field, so for them the cost of investing in those professions is lower than for others. Somebody who loves animals would perhaps have less of a cost caring for them as a zoo keeper. Etc. The point is that you must think carefully about your own talents, skills, proclivities, and interests as well as the possible income associated with each path and the demand for additional workers in that field.
Once you have determined what you will be working on to improve your earning potential, you will have an idea of how many hours it will take and how much it will improve your earnings after you achieve it. Then you should consider how much money you are spending, and try to estimate how much you could save if you invested more time cutting expenses and bargain hunting. Then you must consider how much money you are already making and how much more you could make if you increased your hours. And finally, you must decide how much work you can do and how much leisure you need in order to continue functioning. When you have all of this figured out, it will start to become obvious to you where you should be spending your time to improve your financial situation the most per minute invested.
As an important note, recall that the price of labor fluctuates along with the stock market. This means that the amount of money you could make by working additional hours is going to be higher during an economic boom than during an economic bust. Additionally, recall that prices are going to be very high during an economic boom, and the great deals will start to appear only during a recession. Therefore, it is very likely the case that regardless of who you are, you will be well served by working as much overtime as you can during an economic boom and putting off purchases and bargain hunting, and then investing time heavily into self-development and bargain hunting during a recession, when you will probably not even be able to find enough hours to work overtime.
If you follow the mental heuristics about spending and apply your time toward the most profitable uses following the model provided in this chapter, you will one day find yourself in the anti-paradoxical position of getting more lifetime leisure by working fewer hours, because you already have enough savings to pay for the rest of your lifetime’s leisure. However, if you would like to get to this delightful moment even faster, then it’s time to get into the next section on macroeconomics.
Optimizing How You Store Wealth
Not all types of wealth are equal. Asset prices fluctuate against one another constantly, and the dollar itself is an asset. If you hold dollars, then the value of your wealth depends on the value of the dollar. If you hold the title to a house, then the value of your wealth depends on the value of your house. If you hold gold bars, then the value of your wealth depends on the value of gold. Etc. The long and the short of it is that the dollar is carefully managed by the central bank to lose 2% of its value every year. Sometimes they screw up and it loses more than 2%, but they almost always succeed in losing at least 2%.
Obviously, if you are trying to save up wealth, you do not want the government stealing 2% every year through inflation. Also, because the national debt is now over $22,000,000,000,000, and the national debt to GDP ratio is greater than 1, and the U.S. continues to increase deficit spending, it is very, very likely that the dollar is going to lose more than 2% per year over the long term. So, you need to get other assets.
This book is really just about how to get to the point of being able to purchase assets, rather than advising on what assets to purchase. Once you have the money and the time to start thinking about investing, it’s time to get another book. But, I brought this up to say that as you save up money, you should not just save it as dollars. You should start buying assets as soon as possible.
Assets come in many varieties, from the obvious ones like houses, stocks, and bonds, to less obvious ones like collectibles, fine art, fancy cars, patents, copyrights, royalties, precious metals, resource rights, cryptocurrencies, securities, and futures contracts. Some of these require large amounts of starting capital; others are very easily affordable for any American with a job. You don’t need to save up $10,000 to start investing, and you’ll save up $10,000 faster if you start investing immediately.
Once again, there is a psychological aspect here. Recall that by now, you have already budgeted all of your income, and you have a rule that you do not spend money you do not have in the bank. If you turn your banked money into investments, it becomes difficult for you to spend your saved wealth, because you would have to sell your assets first before their value could be spent. Thus, if you immediately turn all of your savings into investments and refuse to buy anything on credit, then you lock yourself out of impulse spending entirely.
Section I: Building Wealth Through Financial Habits
Chapter 1: Credit and Interest Chapter 2: Rent and Ownership Chapter 3: Budgeting & Reducing Expenses Chapter 4: Bargain Shopping Chapter 5: Optimizing How You Allocate Your Productive Time Section I Conclusion
Section II: Taking Advantage of Factors Bigger Than Oneself
Chapter 6: Crash Course In Microeconomics Chapter 7: Crash Couse in Macroeconomics Chapter 8: Why Businesses Sometimes Sell At A Loss Chapter 9: You, The Savvy Consumer Chapter 10: You, The Savvy Producer
