Money Value of Time

Today, I wish to reinvent the wheel and talk about ‘Money Value of Time’.

Wait. Isn’t it supposed to be Time Value of Money?

As a finance professional who has spent countless hours crunching numbers, I’ve used this to calculate multiple Net Present Value[s] (NPV) for multiple companies. For the uninitiated, NPV is a way to calculate what value does something hold today basis future projections.

If you are a salaried employee, it could be discounting your future salary earnings using an appropriate rate of interest (called the discount rate) to arrive at what that would be your true worth today. If you are thinking of starting a business and wish to raise money, you use your expected future earnings (discounted using the rate of interest) to arrive at a value of your business.

5 Minutes Away

If you’re reading this being in India, you must be familiar that the next destination is always 5 minutes away. The friend who’s making you wait at the coffee shop is 5 minutes away. The food that you ordered at McDonald’s is well, 5 minutes away.

Why don’t we value our time? How can we evolve better as a society?

Taking inspiration from serial Indian entrepreneurs Ankur Warikoo and Kunal Shah speak extensively on this, here’s what I’ve gathered.

What’s your value per hour?

Every person living on this planet has a price per hour. A doctor might charge you X dollars for 5 minutes of consultation, a personal trainer could charge you those same X dollars for an hour. How do you calculate yours?

Say you work as a salaried employee making INR 50,000 a month. You work 6 days a week, 8 hours a day. That is approximately 48 hours a week. For ease of calculation let’s round it up to a 50-hour work week. This effectively means that you have a price of INR 250 per hour.

Anything and everything you do has an opportunity cost of INR 250 hour. If say, you’re self employed or presently not earning, you can set this benchmark for yourself – it could be either above or below based on how much you’re making or how much you expect to make.

This opportunity cost becomes particularly important in pursuing tasks when say, you’re not specifically working for money. It could be, for instance, spending 3 hours comparing shopping sites to squeeze a 100 rupees better deal (effective opportunity cost of INR 750) or going from store to store trying to bargain prices for a better deal on essentials or groceries.  

The other way to look at this equation is maybe squeezing that time out to read a book. It may lead to adding another layer of knowledge to improve your per hour opportunity cost. A portion of that hour could be used to meditate which can make you de-clutter your mind better. There are multiple ways of looking at the effective allocation equation.

I wrote a few of my key learning from Ankur Warikoo and had an interesting conversation going forward on this topic. Feel free to add your thoughts ahead.

So why don’t we see time the way it is supposed to?

Kunal Shah, in a podcast suggested that’s partly got to do with how salaries are paid in India – on a monthly basis. Compared to the west, where a lot of times disbursals occur on a weekly / daily basis an immediate correlation is developed between outcome and reward.

This effectively makes people value their time better on a daily basis than on a monthly basis. Corporates in India generally look at salary disbursement as an administrative hassle that should happen at the end of the month. This also leads to delaying things like investment decisions, making expensive purchases on credit, so on and so forth.

Time is finite, money is not.

Being voraciously active on Twitter, Kunal has often mentioned:

Do not envy the wealthy. Envy their skills.

Time should always be considered more important than money. For the wealthy, their money makes more money than they personally can with the same amount of time.

Drawing a parallel here to the power of compounding, any wealth in order to become serious wealth generally happens towards the fag end of your holding period – provided you’re willing to hold it for a truly long term.

I am sure we’ve heard this a lot of times but in the interest of concluding this, we’re provided with 86,400 credits everyday (the seconds of time) with no carryover. If the top 5 utilization line items of this is Neflix, YouTube, Social Media, Incognito browsing and Cat GIFs, it’s time to do a hard relook as to how are we allocating this finite resource.

As Naval Ravikant once put it, there are three events that happen in your life – birth, being alive, death.

Of the three, there’s two that’s not in your control. Try optimizing the one that is in your control – being alive.  

Update: Got a shout-out from the man Warikoo himself for putting this up.

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