Key Takeaways:
- The saying “time is money” is also true vice versa. Money is time.
- The guiding principle says to think of money in terms of the amount of time.
- Determine your real net hourly wage and use this metric to understand the implied “stored time” in various purchases to gain new perspectives.
For many of us, money is a precious resource that we seek. We go out of our way to make money. After all, money is how we obtain the things that we need and want.
However, it’s critical to remember that most of us trade an even more valuable resource for money. We exchange time (and health!). Time is a resource that is finite and can never be returned. We can never get time back. This understanding is the reason why we at FinancePupil strongly believe in the following guiding principle.
Money is time.
The reason the statement “money is time” a guiding principle is that we think of money in terms of the amount of time it takes to obtain such capital. A way to think about money is that money is stored time. This perspective helps develop healthy money attitudes, especially on spending habits.
Below are a couple of steps to help you on this journey.
- Figure out your actual take-home net income
- Figure out the amount of time you actually spend working
- Determine your net hourly wage
- Use your net hourly wage to gain new perspectives
- [Optional] Consider additional adjustments
- [Bonus] Impacting your net hourly wage
We developed a simple mobile app for you to do this calc. You can download it here.
Figure out your actual take-home net income
The first step is to figure out your real net income. The key word here is “net,” which means taking your income and reducing it by the expenses you incur. The goal is to arrive at the precise dollar amount that you come out with for working. Here’s the formula.
Net Income = Take-home Pay – Work-induced Expenses
Take-home pay is effectively the amount that enters your bank accounts per pay period that you get to keep. This amount is your gross income reduced by items such as taxes, social security, and health insurance. You can remove any impact from investments (e.g., 401k, IRA).
Work-induced expenses are all the non-one-time, recurring costs you incur for working. It’s important to include all the money you spend related to work that you pay out-of-pocket. Some examples are below:
- Commuting costs (e.g., public transportation, parking)
- Childcare expenses (e.g., daycare, nannies)
- Home office needs (e.g., paper, upgraded wifi)
- Daily supplies (e.g., coffee, stationary)
While you should be comprehensive in adding work-induced expenses, keep in mind that the objective is to capture the incremental costs incurred for work. If you would’ve spent that money without work anyway, it should be excluded in the calculation.
These two components help derive your Real Net Income.
Figure out the amount of time you actually spend working
Next, figure out the total amount of time you spend on work and work-induced activities. While most of us know how much time we spent at work, we aren’t always fully aware of the amount of time we spend outside of work for work. The objective here is to capture the total amount of time we spend “for” work.
Some examples of activities to consider including on top of work hours are listed below.
- Traveling time (e.g., commute, business travel)
- Time spent outside regular work hours on work (e.g., working after dinner, overtime, pseudo-mandatory work social events)
- Training / learning (e.g., conventions, private coaches)
Like how you should be comprehensive but fair on expenses that were incremental because of work, you should look at time spent on and for work critically.
Summing up all the time spent on and for work is your Real Working Hours.
Determine your net hourly wage
With both the net income and the actual hours, you can determine your net hourly wage with the following simple formula.
Real Net income / Real Working Hours = Net Hourly Wage
Note: The period used to evaluate Real Net Income and Real Working Hours should be the same length of time.
The Net Hourly Wage is a key metric. It represents the amount of money per hour of your time.
Here’s a simple example:
Let’s say Jessica makes $50,000 a year, and she lives in California. Her monthly take-home pay is roughly $3,100. Jessica spends approximately 45 hours at work, 2 hours per day in traffic, and engages in an hour-long weekly social event outside 45 hours. The weekly social event is not company-sponsored, and she gets one drink for $15. She takes public transportation to work, and that costs her $100 per month. The below table summarizes the example.
Note: The above table assumes there are four weeks in a month.
Jessica may have assumed that her $50,000 annual salary equates to roughly $24 per hour. However, taking into account of work-induced time and expenses show that her Net Hourly Wage is slightly more than $15 per hour (determined by dividing $2,940 by 192 hours).
Said differently, every real working hour equates to approximately $15 for Jessica.
Use your net hourly wage to gain new perspectives
Your Net Hourly Wage is a metric to put money into perspective.
Continuing with the example above, let’s say Jessica wants to purpose a Nintendo Switch that costs $300. Given that Jessica’s Net Hourly Wage is $15, this means that the Nintendo Switch costs Jessica approximately 20 hours (determined by dividing $300 by $15). Jessica can then think about whether or not the Nintendo Switch is worth 20 hours of her time that she will never get back.
As you can see, the Net Hourly Wage metric helps convert monetary decisions into the implied, irreversible cost in time. This lens is a different way to view the world.
Consider additional adjustments
The above framework is useful in gaining some perspective. We can take it a step further. There are often other indirect impacts, such as ones on physical and mental health. These indirect impacts can be assigned either a monetary value or a time value.
Some examples of these indirect aspects are listed below.
- Loving your work. Perhaps you enjoy your work and like spending time with your colleagues. This situation is great and a real positive. This may result in you adjusting the Net Hourly Wage metric by lowering Real Working Hours because working doesn’t feel like working for you.
- Sleep deprivation. This is an example of how work may be impacting your health in negative ways. While this may not immediately intrude on your daily life, there certainly is a “cost.” You may want to adjust Net Hourly Wage by increasing Real Working Hours because you are not getting proper rest. Separately, we explore how sleep and money are interconnected here.
Impacting your net hourly wage
The Net Hourly Wage framework is also helpful because it gives you a formulaic method to identify ways to increase it. We explore this more here.
Thinking about money in terms of stored time is not only one of the real ways to understand money but also a practice way to put things in perspective. Money is time. As you make money decisions, especially spending one, it might be helpful to evaluate the decision with this principle.