Many of my readers aren’t just here to marvel at the stupid stuff I blurt out sometimes with regards to financial independence. No, being quite the little investors they are, most of them are actually looking for new investing ideas. It’s true too that stock markets hold no secrets to this diverse group of financially savvy people. As such, they own small pieces of profitable businesses all over the world.
With that comes the difficulty of having to deal with multiple currencies. Personally I own stocks denoted in Euros, US Dollars and Great-Britain’s Pound-Sterling on multiple stock exchanges. Lots of personal finance blogs, mainly those geared towards dividend growth investing, therefore offer at least one or two articles on how to deal with foreign currencies and currency risk.
That’s all fine and dandy of course – seriously, read up on that stuff if you’re an international investor. However, I always find myself thinking “oh, man if only they thought outside of the box of what a currency actually is.” So that’s why it’s high time that I published my own take on the meaning of a currency. Let me therefore start by stating the following.
There’s a new currency in town, folks, and it’s called Time. (I told you I blurt out stupid stuff sometimes!)
Time as a currency
Seriously though, forget about Euros and Dollars for a moment and think about what a currency actually is and does. In essence it’s nothing more than a medium of exchange: “I give you x amount of currency in exchange for product or service X, Y or Z.” After our currency changes hands you will be able to do the same with another person. And so on and so forth.
For a couple of centuries now people within geographically delimited areas have been using a system of money as a currency to provide eachother goods and services. Euros, Dollars and British Pounds serve as different types of currencies withing those systems of money.
We do so for convenience. It’s impossible to exchange two goods or services of equal value every single time a transaction takes place, so we collectively establish the value of an intermediate type of currency. One Euro is one Euro, whether you’re from Belgium like me or from France.
Now consider what would happen when society as a whole rejects the previously established currency. One possible outcome is what happened in Germany when it was hit with horrible levels of inflation. People actually started trading time instead of the Deutschmark. While that sounds convoluted, it’s quite an ingenious solution to devastating inflation. You could for example offer your hairdresser 30 minutes of woodchopping in return for a 30 minute haircut.
One major flaw
Sounds great, right? Sadly, there’s one major flaw to using time as a unit of exchange. Not everyone values time the same way!
First, some people are lucky enough to possess more valuable skills than others. Basically, they earn more per hour. There will always be more people who have the skillset to drive a truck, whereas very few people know how to heal someone’s failing heart. Therefore a heart surgeon trading two hours of his time with a truck driver mainly sounds like a pretty sweet deal for the truck driver.
Second, the liquidity of time is much more limited than that of traditional money and currencies. If I trade you €10 for a book, you’ll be able to use that money at any given time in the future, whereas I won’t always be able to trade you my time at any given moment – even I need sleep.
Pretty stupid idea to use time as a currency then? I thought so too for quite some time until I learned about Optimum Currency Areas (OCA), a model pioneered by Robert Mundell. Basically, an OCA is a geographical region in which using a single currency would result in maximum economic efficiency. The best known examples in this regard are the European Euro and US Dollar.
As most of you know the Euro area isn’t doing too great these days, with many economist pointing out that the Euro fails to comply with the theory of OCA. It’s true that the Euro area fails to meet the the criteria of labour mobility and risk sharing, for example. Without going into too much detail, there’s one proposed solution to this problem that I really like: separating the means-of-payment function from the currency-unit function of the Euro.
Such a solution would mean that you can still use the Euro to pay in all Euro countries, but its actual value differs from country to country like with other international currencies. I suggest that we all indivually apply the same separation to the money we own: even though one Euro is worth one Euro to everyone, its underlying value is defined by you personally in a certain amount of time.
Cool story bro
Well done, NMW, you scared everyone away. That’s a lot of difficult theories to explain we should calculate our hourly wage working our day-job and decide if purchasing something is worth x amount of your worktime. You’ll still be paying in Euros or Dollars (means-of-payment), but inside your beautiful mind you’ll be trading away time spent at the office (currency-unit).
Is that brand-new €600 smartphone worth 50 hours or 6.25 days at the office to me? Does it make sense to spend almost 30 hours every week working a job to provide myself with housing? Am I nuts for trading 20 minutes of my time for a special Belgian abbey beer?
Those are the questions you should be asking yourself everytime you reach for that fat stack of bills in your wallet. When you’re trying to become financially independent, it’s not only about value-for-money anymore. It’s about value-for-time.
If you’ve ever wondered how I got to save about 70% of my income the past few months, this is how I did it. Don’t think about money as being money, but as being time. €12 is not €12 to me, but the equivalent of 1 hour. Next time you’re going for a haircut, don’t think about how much it costs, but think about how long you’ll be chopping wood at your office to pay for your brand-new hairdo.
You’ll be surprised how liberating it is to know you resisted the urge to splurge on something you didn’t need when that means you could be spending less time at your job. I could actually be working two days every week and have enough money to go around. Notice how that’s the exact opposite of what most people’s workweek looks like: five days at home versus five days at the office.
Like I said, there’s a new currency in town. It’s Time. It’s awesome. And you should definitely try it. Or maybe you already are?
I look at it the same way NMW. I bought a backpack blower to save me 2 hours each time I rake leaves. It will have paid for itself in 6 hours of office work. With tune ups it should last a lifetime.
That definitely sounds like a good purchase then! Only six hours at the office and you’ll be saving yourself 2 hours everytime you rake leaves… No brainer.
Have fun raking leaves, pal! 🙂
great discussion NWM ! – as I mentioned before you remind me of myself may years ago (does that make you/me chronologically shifted clones? 🙂
I have always thought of my time as the only “real” thing that I own and further it is a very limited resource – 1 lifetime (of admittedly varying lengths) per person – hence it must be wisely allocated and used. Only when you reach FI does time disconnect as a currency – at that point you no longer require your economic input (time) to sustain your lifestyle because the previously “used” units of time currency are now providing you the ‘trading” currency (Euros, dollars) with which to live.
As an aside it is important to note the differences between “trading” currencies (exchange rates) because of the impact on financial returns.
Oh, man, I sure do hope we’re not clones of eachother… I don’t think the world is ready for two copies of myself! 😀
You’re right about time not being a currency anymore when you’re financially independent, I hadn’t thought of that. Another way of looking at it is that you’ve got so much time that you’re figuratively rich.
Thanks for stopping by again! Glad you seem to like the blog.
Great article, time is important. It never makes sense to me to spend the whole day working on some project when you can hire someone for less than $50 to do it all and save you all that time. Time is important, we all have set amount of time in our lives. Don’t waste your time. 🙂
Interesting that you bring up paying for something that would take you way more time. I think most people think doing something yourself is always better, but that’s not the case. Like you said, if you can be more productive doing something else (and earn more money doing it) than working on a project that is cheaper if someone else does it, having the other person doing that job definitely makes sense.
Sadly most people aren’t productive when they have free time on their hands, so the logic doesn’t hold! Watching TV all evening boggles the mind sometimes. 🙂
Hope you’re having a great weekend over there,
For a second there I thought you were going to write about now amazing bitcoin is haha.
Haha! Best. Investment. Ever. 😀
No worries, I’m not big on the entire Bitcoin. It’s not a currency to me since there’s not a homogenous group of people recognizing it as such. A Bitcoin literally is worth nothing to me.
Very well said!
Thanks, Kassandra! You can vote for me in the upcoming presidential elections! 😉
When I was in my late 20’s I cashed in on my time, so to speak. I left my job to work for myself and ended up paying the bills by working part time from home. It was a very interesting experiment and taught me a lot about how I value money, and time. Now I’m a stay at home mom but I still find myself asking if I would like HIM to work for an hour to pay for….
Interesting you decided to left your job to start working part time from home in your twenties already. Shows that you were financially savvy at a young age already. Many people my age now don’t have a clue about how much they actually earn and spend on stuff.
Don’t have your husband work to hard though! 😉
Always seen this whole $$$/personal finance/investing/FI as ways to get more time! It’s all about using your time to do exactly what you want to do in this life 😀
Great post – loved it!
Exactly, Steve! I think that’s what most people who are trying to reach FI are hoping to achieve: doing whatever you want without having to worry about anything.
Thank you for the kind words!
Have a great weekend,
Ha – bitcoin was the first thing that came to my mind too! Should have known better when we’re dealing with the ‘beautiful mind’ of NMW!
I like this way of thinking, and have been doing it on and off since I read ‘Your Money or Your Life’ (which is probably the best personal finance book of the hundreds I’ve read). The problem I’ve have is, my effective hourly wage is relatively high, so every small thing doesn’t seem so bad – “Oh, just a few minutes of my time for this delicious looking beer? why not have 3 then!”
So for me its really focusing on what do I have left over every month. Because my savings rate is so low, it’s like I’ve worked all month just to earn say a day of potential retirement. It’s like I’m highly leveraged – every few dollars I save over the month could double that to two days!
Anyway, very interesting read as usual NMW!
Beautiful mind! I’ve got it in writing now, sweet! 😀
That’s an interesting conundrum you’ve set yourself up with. Also, first world problem: my hourly wage is too high!
Seriously though, I understand what you mean. If I had to work only five minutes for a delicious looking beer at a bar I’d probably be an alcoholic when sticking to this method. I’d try to focus on a specific savings rate then too. It’s the best way to ensure you don’t go overboard.
Thank you for the kind words, Jason. Really appreciate it.
Hi Jason – my I be so bold as to make a suggestion?
First the problem of “making too much money” is not a problem 🙂 (except for tax purposes) – what I would suggest is to use an “after tax and savings” hourly rate (i.e.net rather than gross) to value your time –
eg. say you make $10/hr (gross)
– tax is say 20% ($2.00) – unfortunately the taxman cannot be denied
and you have set for yourself a savings rate of 25% ($2.50)
then your “real” effective hourly rate is $5.50 which you would use to value those beers 🙂
I suspect your will find the transition painless after a while and find yourself smoothly on a path to FI.
A book I can highly recommend is “Your Money or Your Life” by Joe Dominguez and Vicki Robins – sadly Joe has passed and the book is out of print but there are copies kicking about.
The actual methodology discussed in the book is outdated – written at a time of very high yield government bonds- but the concepts using other passive income still are workable.
Hi gcai, thanks for your suggestion! Firstly though, I need to clarify that I definitely don’t make ‘too much’ money, I just said it was ‘relatively’ high, but I meant this in the context of relative to some of the discretionary things I buy, like lunch, drinks etc. – I wish earning too much money was my problem!! (but then again, what is ‘too much’?).
But I really like your suggestion of including the target savings rate. I have read ‘Your Money or Your LIfe’ a couple of times, and as I mentioned above I agree it’s one of the best PF books out there. And I like their way of adjusting your hourly wage for things like transport, work clothes etc. I do already adjust for tax, but I think having the savings rate as part of it helps add another ‘cost’ to all those purchases.
And like most things, I just have my ups and downs when it comes to making decisions to spend. Sometimes when I’m a little flat or uninspired, I can easily spend $10 on lunch and just rationalise it by saying it’s only say 15 minutes of my time, but other times when I’m back on track, I realise that just a few of those decisions will have a fairly big impact on my savings rate – and how many more days / weeks / months I’ll have to work for it!
Thanks again gcai, great to see fellow readers looking to help each other out!
sorry Jason I totally missed your mention of “Your Money or your life” in your post – sometimes the attention wanders – I was focusing on the beer ! 🙂 (a la Homer Simpson).
As to waffling (pin intended) on spending decisions and/or “blowing” money – it happens – we’re human after all. As you say as long as the “damage” is relatively minor and doesn’t become a habit all will be well – personal confession – I have been known to buy a lottery ticket or two – totally irrational I know – but I survived with minimal impact on FI.
Sometimes doing irrational things can be fun as long as the long term impact in not great.
It’s a good thought exercise. We apply this to the number of months we have to work until we hit FI. We’ll say, well, we could buy X, but we’d need to spend another month at our jobs… And guess what? That ensures we pretty much never buy it!
That’s a pretty neat way of thinking about it too! I’ll definitely try it out next time I’m eager to buy something!
Time is absolutely a currency. We trade our time for other currencies from our day jobs. We have to budget and choose what we spend it on.
It can also be thought of as a commodity. Each person only has so much time in their life before its used up.
Thinking of time as a commodity has also been something I’ve been thinking of. The trouble with that thought process is that you’re not sure how much time you have left, i.e. when will you die? I would definitely do things differently if I had only one more year to go versus six more decades.
Thanks for stopping by,