Economics is all about the value of missed chances.
What is money? If you are a resident of the United States, you most likely associate money with dollar notes. The Yen might come to mind for many in Japan. France, Germany, and Italy's residents might consider the Euro. Money is referred to as "a commodity accepted by general consent as a medium of economic exchange" by economists Milton Friedman and Allan Meltzer. It is the primary indicator of wealth and the means by which prices and values are conveyed. As currency, it moves anonymously from person to person and country to country.
What if you had a different perspective on money? Try thinking about "my time" instead of "money" while thinking about money because time is frequently what you have to give up in order to acquire money.
Exchanging Crops for a Phone
A farmer, let's say, wants a new phone. He can build his own crops, but not his own phones. To raise products that he can sell to others for money, the farmer gives up his time. He can purchase a new phone once he has this money. The proprietor of an electronics store gives up her time to work there in order to make money. How does she spend that cash? She might purchase the farmer's produce at the supermarket. For both the farmer and the proprietor of the electronics store, the money is merely a time-saving intermediary.
Even though this is a very simple example, many transactions in our society take place in this manner. You could become more frugal with your money if you begin to view it as time. Being more frugal with your money might help you use your time more effectively.
How to Apply to Your Life
Here is a situation from the real world where you could use the time as money principle. As of November 2022, the average cost of a new car was $48,681, per Kelley Blue Book. Opportunity costs are the foundation of economics. If you spend $48,681 on a new automobile, you will not need to spend that money on anything else. Assume you earn the national average of $32.80 per hour. By dividing $48,681 by $32.80, we can calculate how many hours you would have to trade in order to buy a new car: 1,484 hours! At 40 hours each week, that equates to nearly eight months. (The amount of hours will increase even further after taxes are taken into consideration.)
Instead of asking yourself if the car was worth $48,000 as you might ordinarily do, consider whether it was worth 1,484 hours of your time. Are you prepared to work for 74 percent (1,484/2000) of a year to pay for that new car? If the response is "yes," go ahead and enjoy your new car. If your response is "Hmmm I think I might be able to use those 1,484 hours more effectively somewhere else in my life," then maintaining your present vehicle may be a better use of your time.
Right now, I'm involved in this situation. I have a 2011 Prius with only about 75,000 miles on it. It gets approximately 50 miles per gallon, operates flawlessly, and doesn't require any significant maintenance. Although I don't need a new car, the 2023 Rav4 and 2023 Prius have caught my attention. Using this method in my thoughts, I came to the conclusion that it would take too many hours of my working life to pay for a newer vehicle that I don't actually need. I'd rather utilize that time to get out with my friends and family, write blog entries, make YouTube videos, and stay active by playing pickleball and beach volleyball.
Words to Live By
This way of thinking is applicable to a wide range of situations. Simply divide the cost of the item you are thinking about purchasing by your hourly rate. That will let you know how many hours you'll need to put in to pay for your upcoming major buy. Next, decide if you're okay with the compromise.
Here is a passage from Morgan Housel's book The Psychology of Money that I particularly like. The freedom to do as you please, when you please, with whomever you like, for as long as you please is invaluable, he claims. The highest dividend that money can buy is this.
To really enjoy your vacation, make sure you are managing your finances wisely.
