Is A Dollar In The Hand Worth Two In The Bush?

Following a recent post describing twenty three weekend personal finance projects, a discussion emerged about whether some of the projects were cost-effective given the time investment. 1mil made the following comment:

Wouldn’t it be more worth your time to do something that had the potential to get you more money than you are saving by doing it yourself?

In general, I agree with 1mil: if you have a surefire way to make, say, $50 in an hour, why would you spend that hour saving $20? Obviously, the activity that earns you $50 is more efficient than the activity that earns you $20.

Where the situation becomes more tricky is when you do things that have the potential to make you more money, because at that point it becomes risk assessment. Let’s take a look at an example:

Joey has an hour to burn, but after that his schedule is packed. There’s a Lowe’s down the street and he has heard that you can save about $7 a year per bulb by installing CFLs in your home. He’s decided to buy a couple jumbo packs of CFLs to replace all of the bulbs in his home, which he estimates will save him $150 a year.

On the other hand, Joey runs a small business in his spare time, and he could instead spend that hour doing some business promotional activities, such as placing an ad in the local newspaper or spending forty five minutes handing out flyers on Main Street. It’s impossible to judge how much this activity is worth, but the potential is there to gain a few new customers, which may make Joey more money than the CFLs would.

Which do you choose? It’s not an obvious choice either way. There is a general solution to the problem, however: maximizing the moment.

If it is the middle of the day, there’s likely to be a lot of potential customers wandering along Main Street, so Joey has a much greater likelihood of meeting a potential customer. However, if it is in the late evening, there are going to be a lot fewer people on Main Street, so his time is better used buying and installing the CFLs.

So, to answer 1mil’s question, the answer is sometimes. Most activities that save money can be done whenever it fits into your schedule, so you should find places in your schedule for money-saving activities when your potential money-making activities have a very low potential (like in the evening, in Joey’s case). By maximizing the potential money-making of your activity, you’re minimizing the risk of the time investment you put into it, making it a stronger use of your time.

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