Is Time the Difference Between Big Spenders, Frugal Folks, and Cheapskates?
This is a guest post from Trent Hamm who writes about personal finance at The Simple Dollar.
I tend to find that most people exist somewhere along what I like to call the frugal spectrum.
At one end are people who spend like it’s going out of style and basically believe that any initiative that gets in the way of just doing whatever they feel like is a giant waste of time. For them, the value of their spare time is infinite – outside of what they have to do to keep some cash flow in their pocket, they think any time invested in saving money is time wasted. These are the people who shop only at specialty shops.
At the other extreme are people who will do anything to save a buck – the cheapskates. For them, the value of their spare time is zero. They’ll invest any amount of time it takes if it saves some additional money in the end when all costs are figured in. These are the people who make eight stops on their shopping trip to save $10 overall.
Most people, me included, are somewhere in between these two extremes. There are many money savers that are worth the time investment – for example, installing a programmable thermostat is a great way to spend an hour if it saves you money over and over again. On the other hand, washing Ziploc sandwich bags is not particularly cost effective – it takes a minute to get it actually clean and saves you a dime at most.
I would argue that the most frugal person in the world isn’t the person that goes grocery shopping at eight different stores. It’s the person that knows exactly what their spare time is worth, quickly recognizes opportunities that are worth more than the value of the invested time, and jumps on board.
How do I know the value of my time? One good way to start is to calculate your “true hourly wage“: the amount of money you make in a year (subtracting out all extra costs, such as transportation, clothing, taxes, meals eaten out, child care, entertaining coworkers, travel, etc.) divided by the number of hours you work in a year (adding the hours spent commuting, traveling, “decompressing,” shopping for clothes, working at home, etc.). This is the cash level that you’re currently willing to sell an hour of your time for.
Many people put a bit of a premium on their spare time beyond this true hourly wage, arguing that after a full day of work, your spare time has some additional value. Others argue that time invested now that can move retirement closer is well worth the same rate you get working – or even a somewhat lower rate. Both are reasonable ideas that fit in the middle of the spectrum.
This logic is why wealthy people pay others to perform most life services. Let’s say, hypothetically, you actually earn $500 for each hour you devote to work. If that’s the case, then unless you’re actually earning more than $500 from a frugal task, you’re better off paying someone else to do it and working instead. They know what the value of an hour of their time is, even if it’s an order of magnitude more than what you value your time at.
That means, compared to the rich person down the block, you’ll be making different choices about the value of your time. It’s cost-effective for most people to mow your own yard, for example.
Another common trap is the “live for today” mentality. While it allows you to spend wildly now and move more towards the “time has infinite value” end of the spectrum, it comes at the expense of time later on in life. If you’re in an enormous debt hole when you’re thirty because you didn’t bother to ever be frugal or control your spending, you’ll be digging out of that debt hole for the rest of your life. You’re making an hour now be much more valuable than an hour later on, and your older self will suffer the consequences.
What’s the point, in the end? Frugality is relative. It’s about finding the maximum value for your time, both today and tomorrow. A particular frugal choice might not make sense for you – for example, you might not find it cost-effective to clip coupons. What really matters, though, is whether you actually considered the value of your time in making that determination. A big spender won’t bother, nor will a cheapskate – they’ll both blindly follow their own paths. A truly frugal person will always think before leaping, even if they decide that it’s not worth it in the end.