Money Is Something We Choose To Trade Our Life Energy For

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ymoylThe title of this post is a sentence that appears in bold on page 51 of Your Money or Your Life. 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 lottery ticket is a bad proposition, by the way), we still had to invest life energy or money to receive those things. Investments, for example, don’t 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’re not actually trading an hour of your life for that $15. This is a point I’ve discussed before. In truth, you’re not earning that $15. Some of it is going away to taxes. Some of it is going toward buying your work clothes. You’re 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’t have a commute, I don’t pay for parking, I don’t have to buy work clothes, I have reduced child care expenses, I rarely (if ever) have to travel – these add up, both in terms of financial and time savings.

Second, once you start really realizing how much money you’re receiving for each hour of your life you’re 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’s less than that (as gardening is), it needs to have some extra appeal for me beyond mere frugality. If it’s 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’re investing a significant amount of money and are using passive investing, the hourly rate becomes fairly large. It’s 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’d 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 “time is money” perspective. I might enjoy golfing, for example, but to do that, I’m 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’m spending is that time – and I’m enjoying it. I’m not spending money doing it (which is actually time spent working).

In short, when you spend money, you’re actually spending time at work. If you actually earn $8 per hour invested in your job and you buy a $2,000 television, you’re 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’re 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’s twelve years of working 52 weeks a year, five days a week, eight hours a day.

Some food for thought this Saturday afternoon.

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15 thoughts on “Money Is Something We Choose To Trade Our Life Energy For

  1. I normally do not look at the expense nor work like that. I like to work and I am rather selective as what we spend our money on. We are fortunate to have a low profile lifestyle and earn a lot more than our expenses. I have no debt except for a small mortgage. Our children are grown and we max out our 403B, IRA and Roth IRA>

  2. Other than the payroll taxes, very little of the hourly pay deductions you mention apply to me, and I work a conventional job outside the home. Since I benefit from the government services those payroll deductions bankroll, I don’t think it’s quite accurate to completely deduct those dollars from the hourly rate either. In fact, considered along with the fact that my employer covers my basic retirement fund payments and health insurance, my pay rate is actually higher than it appears on paper.

    I’ve never spent the time it would take to pin this down, but something in the calculation of actual hourly pay has always seemed a little off to me. Maybe because I don’t think you should really deduct all of the taxes as mentioned above, and should only deduct the price difference of work clothes versus clothes you would need to wear anyway, etc. Similar to the classic calculation of the number of free hours one has in a week or day, where you add up all the different things you do in that time frame & come up with a negative number.

  3. This is part of why I changed jobs. I work fewer hours per week, and have a slightly smaller annual salary, but have more disposable income, because I was able to eliminate many expenses associated with my old job.

  4. When I did this calculation, I got a shockingly high number. I ride a bus to work for free. I don’t have kids, so no day care. My work clothes cost the same at the thrift store as other clothes would. I usually bring my lunch. So I have very few added expenses. And I get most of my reading done during the commute, so I don’t really waste any extra time either.

    On the other hand, not only do I get my pay, I also get a contribution to my pension and I also get my health insurance paid for. Basically, I’m making so much money, every single hour I’m at work, that this should be motivating me to hold out as long as possible!

    I read a book where the characters measured distance using the unit called “six packs.” (Um, yes, they drank while driving.) So, like them, you can create your own units of measurement to help keep things in perspective. I’ve measured purchases in terms of boxes of macaroni and cheese versus dollars before.

    However, the thing I most want (no longer is it boxes of macaroni and cheese, though I still like those) is not really helping me. If I measure how much extra money I could be making per month if I invested some money instead of spending it, that extra amount always comes to basically nothing.

    So, sadly, what works best for me these days is picking a couple of spending targets: a maximum (budget) target and a stretch target and I try to see how low I can go and still be happy.

  5. I earn about $50 an hour after taxes. But about half of my job is stuff I would want to do anyway (research, scholarship). So do I actually earn $100 an hour?

  6. @valleycat, OK, on the taxes thing (I too feel I get good value for my tax dollars) but as your tax dollars are surely a drop in the bucket, were you to quit paying them tomorrow, the services would continue (or not) apace. So it doesn’t make sense to calculate those services as a (direct) benefit of what you contribute through taxes, though obviously if in the aggregate we don’t, well, the services will vanish (ahem). And there are some services that are directly tied to our personal contributions, for example, if part of your estate planning includes knowledge that your kids would get social security survivor benefits then that counts as a benefit of working/paying into SS, even if you never actually collect (just like a term life insurance policy).

    I agree though with your point about stuff you’d pay for anyway. We’ve had assorted household payments go up since my DH left the workforce (by choice), e.g., we now use more heating and air conditioning since he’s frequently home during the day, which no one used to be. On the other hand, our childcare costs haven’t diminished, because we’ve opted to continue to use paid childcare. So, I agree — it’s good (insofar as possible) to be realistic about what you are paying for (or not paying for) “because” of your job, and ditto, what you would pay for anyway.

  7. “Even when we do things like receive an inheritance … we still had to invest life energy or money to receive those things.”

    Hmm. The hourly yield on inherited money seems pretty lucrative. I am calculating it anecdotally @ around 25,000 an hour. It is not the hardest money most every make, from a labor point of view anyway. (obviously the loss is a different thing)

  8. This is the sentence that opened my eyes.

    I never cared about money before reading YMYL. So I was a poor saver and would have been a poor investor too had I had any money to invest. If you don’t care about money, you will never have much of it.

    Most of us don’t care about money. We think of it as green pieces of paper. Dominguez changed that. He is the one true giant in the personal finance field, in my assessment.

    Rob

  9. Playing 9 holes of golf should take about 2 hours, if you are paying $40 on a public course without a cart, you are getting robbed. A lot of semi private courses have great discounts, such as: ‘$20 after 5:00pm with at cart as much as you can play’. Golf is one of the pure male bonding experiences I enjoy.

    If you are short on time, we always book the first tee time on Sunday, in the summer we can get out at 5:40am, no waiting, we are back before our families even wake up. We also try for Wednesday at 5:00pm every week, this is a lot harder for the group and can run longer depending on how busy the course is.

    But the expense goes in the budget. Right next to the $80 hair cuts, the toe nail/finger nail care line items. We could cut all these items but Why?

  10. I love this post. I’ve used this thinking to justify paying for a housecleaner, as well to forego a gym membership. Work’s trickier – I started to calculate my “effective” hourly wage some years ago while reading Your Money or Your Life. In my case, because I live 10 minutes from work, have no childcare expenses, and no real need for a separate work wardrobe, after adding in my benefits (80% of my sickness care costs, for one, 20 paid vacation days, 17 paid holidays, sick time, tuition remission, etc.) my effective wage is actually higher than my hourly wage by a huge factor. If I were to work for myself, I’d have to double my salary to enjoy the same quality of life.

  11. I’d often go back to this classic line from arguably one of the best books I’ve read on personal finance, or should we say, a new way of living. Since we’re all deeply steeped in a consumerist culture, having this definition of money is truly revolutionary. It helps that you’re constantly reminding us of the definition through your blog. Of course, the book’s not only concerned with new definitions. As I see it, it does talk a lot about our relationship with money, which can either be destructive or creative.

  12. I got stuck on this line: “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. ”

    Trent, did your company not offer you ANY benefits??

    My company matches my 401k contributions (up to a certain point), gets me health care for much less than I could buy it alone (and pays for part of it), and gives me a solid number of vacation days. The value of all of that is definitely more than the value of taxes I have taken out (especially after the nearly-insane number of deductions available these days!).

    If I were to work for myself, I’d have to make at least $10/hour over my current nominal rate just to keep everything else the same (401k, health care coverage, etc). I’d love to be self-employed, but there’s no way I can make that kind of money right now.

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