Time and Value

As I've aged, I've come to place a higher value on my time, and I struggle to understand why I didn't do so sooner.

This morning, while driving past a new coffee shop that had opened in Fountain Valley, I couldn't help but notice the massive line. As I passed by, I found myself pondering why anyone would endure such long waits. The image brought to mind the recent opening of an In-N-Out in Idaho, with people camping out for up to 8 hours just for a burger. While I do LOVE In-N-Out's burger, the idea of waiting hours for anything seems difficult and a waste of time. And it's not just In-N-Out; I've witnessed similar scenes at Chick-Fil-A or 7-Eleven where people line up for free meals. Surely the hours spent waiting couldn't possibly justify a single meal or drink.

Reflecting back, I recalled my younger days, eagerly standing in line at Pink's Hot Dog or patiently queuing up to watch the Avengers movie. While I cherish the memories of time spent with family and friends, there's also a recognition of the frustrations that often accompanied those experiences. Would I engage in such activities now? The answer is much more complex now and it was a decade ago.

In the world of finance, there are three concepts that are important: Time Value of Money (TVM), Opportunity Cost, and Cost-benefit analysis. TVM is a foundational concept that underpins many of our day-to-day financial decisions, both personal and professional. At its core, TVM states that a dollar in hand today is worth more than a dollar promised tomorrow. This principle is crucial for understanding not just investment growth over time but also for making informed decisions about how we allocate our time, especially when that time has a clear monetary value. Opportunity Cost, on the other hand, refers to the benefit that is missed or given up when choosing one alternative over another. Unlike TVM, which quantifies the value of money over time, Opportunity Cost focuses on the value of the next best alternative that is not chosen. It's a concept that emphasizes the cost of what you have to forego in order to pursue a certain action or decision. Cost-benefit analysis, in simple terms, is weighing benefits against costs to make better decisions.

Understanding these three concepts will help you and your business make the best decision possible. To bring this concept to life, let's consider a practical dilemma that many professionals might face - this is something I faced last month.

As I was going through my year-end invoices, I noticed I was short-paid on one of my invoices. For this example, let's say it was $135. Now, I have a great relationship with my client and I could go back and tell my client to fix this $135 mistake. However, in all reality, it was easier for me to just let go of this and create a professional discount (also known as a credit memo) on our accounting end.

The way that I measured this was calculating the cost involved in this scenario. Opportunity cost, as well as cost-benefit analysis concepts closely related to TVM, represents the benefits you miss out on when choosing one road over another. In this case, I could dedicate 15 minutes to create a credit memo on our end for an invoice and forgo the mistake, or I could connect with the client, show him all the invoices, and make sure they have it correct in their system, or have accountability checks on both ends. I equated that this may take 2 hours of my time. At my hourly rate, I could potentially earn more by working on another project during that time. In comparison, the $135 I would earn from fixing the mistake pales in comparison. Thus, from a cost-benefit analysis, it might not be worth investing my time to correct the mistake.

Moreover, applying the principle directly, we must consider the potential future value of dedicating your time elsewhere. If the use of your two hours could generate more than $135 in the future, then choosing to fix the mistake may not be the most financially prudent decision.

However, treating time as a valuable asset is not just about the numbers; it's also about strategic thinking and long-term planning. There may be non-financial factors that influence the decision. For example, fixing the mistake might enhance my reputation, lead to future business, or prevent a loss larger than the apparent opportunity cost. These potential benefits, while not immediately quantifiable, could outweigh the immediate financial considerations and might make the investment of my time elsewhere more valuable in the long run.

By treating my time and giving it value, it is a vital concept that extends beyond simple financial transactions. It forces us to evaluate our time, the most finite of resources, and to make decisions that align with our long-term goals and values. My scenario illustrates not only the complexity of such decisions but also the importance of considering both the immediate and future implications of how we choose to spend our time.

Understanding and applying the principle of opportunity cost, benefit analysis, and TVM can enable us to make choices that maximize our personal and professional returns, in whatever form they may take.

The point is, learn to value your time. The time spent on one thing may not be worth the effort or the cost you are putting into it. Sometimes do a quick cost-benefit analysis of what you are planning on doing?

It all sounds good in theory but would I queue up to watch “the Avengers” today or wait weeks to watch the new movie?

I would love to say no. However, I guess the nerd in me will decide when “Deadpool & Wolverine” comes out to know the true answer.

Has there ever been a time where your time was just not worth the effort or the cost you would put?