I’m going to introduce you to a very simple idea which is the most important concept of the Extreme Money Makeover Plan. In order to obtain financial security, you must integrate this way of thinking into all aspects of your life.
Lets put the phrase “time is money” into mathematical terms: Time = Money
If Time = Money, then the inverse, Money = Time must be true.
Money Is Time
If our time is worth money, then money’s worth comes from our time.
You must come to terms with the fact that we only have so much time to live. The money you make in your life is really just a representation of your time. Whether you choose to spend or save, your actions dictate how you spend your time.
For example: You get paid $20 per hour. If you spend $20 on dinner, you paid for dinner with one hour of your life. If you buy an Apple iPad for $500, you spent 25 hours of your life to pay for the tablet computer. If you save $100 this month, you are saving five hours of your life.
When you start thinking about spending money in terms of time, your perspective on how you use your money changes quickly.
The issue changes quite dynamically when you factor in things that affect your “real wage.” Your real hourly wage is computed by taking your hourly earnings and subtracting taxes, the cost of commuting, clothing you wouldn’t normally purchase, and other activities that are associated with working. The point is that when you calculate your real wage, you actually make a lot less than your stated hourly wage.
I don’t think it’s completely necessary to go into the complicated matters of figuring out how much your real wage is. You just need to understand that when you work, you’re giving time to the government in the form of taxes. You’re also spending time on entertainment, meals, vacations, and transportation, etc.
That just means that everything mentioned in the example above actually costs more time than initially estimated. With real wage factored in, the iPad now suddenly costs upward of 40 – 60 hours to pay for!
Is It Worth It?
Use this new way of thinking to influence how you consume. When you spend money, ask yourself these questions:
- Am I fulfilling a need?
- Is it worth it?
- Is the money I’m spending a good use of my time?
- Am I getting value from my purchase?
What’s the takeaway from this? Don’t think of money as a store of value. Think of money as a store of time. Time is the most valuable asset you have. Spend it wisely.