If you’re a busy young professional, you’re tasked with the challenge of figuring out how to spend both time and money wisely.
“Time is money” is an old adage many of us have heard — but have you thought about the actual implications that time has on our money? Time allows our investments to grow and provides us with financial opportunities.
Knowing how time and money relate to one another can open your eyes to a world of opportunity and increased productivity. Consider these 3 reasons why your time is money:
1. Compound Interest
When it comes to investing your money, time is your friend. Investments need years to grow due to the fact that compound interest gains traction year after year. With compound interest, your time is literally money.
Let’s look at an example to see this principle in action. If you invest $1,000 into a simple index fund today and we assume a rate of return of 7%, that means you’ll have $1,070 in one year. Not very exciting, right?
But what if you factored in more time? Say you contributed $200 a month to that initial $1,000 over 10 years. In this case, with the addition of time and continued contributions, the value of your investment would grow to $35,126!
Even better, in 20 years, the amount will grow even more: to $102,258.
Isn’t that crazy? And that’s just assuming a $200/month contribution. If you can contribute double that amount, at $400, you’ll subsequently double the value of your investment to $200,648.
It’s hard to believe in the power of compound interest at first. How can a simple initial investment turn into so much money? While the journey is a slow one, the younger you start investing, the better off you’ll be.
2. Productivity Will Get You Ahead
Your time is also money when you think about how you spend your time. If you have goals to pay off debt or save for early retirement, it’s worth assessing if you’re spending your time in the most productive way.
That’s not to say there’s no value in having free time. Everyone needs a break at some point! But if you’re looking to get ahead, working on a side hustle outside of your day job isn’t a bad idea.
Think of it this way: if you get home from work and plop down on the couch to watch TV, are you making any money from it? Your time could be put to better use by working on a side hustle that will bring in more money.
When you spend time wisely and productively, it grants you the opportunity to further your income. It’s simply a matter of being willing to make the sacrifice. (That’s why it’s important to choose a meaningful side job; one that’s fun, and one you’ll look forward to.)
Alternatively, you can pick up overtime at work, or get a second job that works around your schedule.
3. Your Time Is Valuable
Your time in and of itself holds value, especially if you start working on a side hustle. You’ll begin to see opportunity in every moment.
Some people in the personal finance world like to convert hours to dollars. If they’re thinking about buying something, they’ll ask themselves, “How many hours would I have to work to be able to afford this?” It’s a different take on whether or not something is worth buying.
You can use the exact same measurement to determine if any project is worthwhile.
For example, cleaning the house: toys are scattered all over the floor, the laundry is overflowing, the kitchen is a mess, and your house could really use a deep cleaning. You need to think about the opportunity cost.
Should you attempt to clean your house by yourself, or hire the project out? Think of it in these terms: how much time would it take you, what’s an hour of your time worth, and how much would it cost to hire the job out?
That will tell you if your time is better spent trying to make money than tackling chores.
To help you out with the calculations, Clearer Thinking has an in-depth calculator that will help you figure out a dollar amount for your time. It’s not always as simple as determining your hourly wage.
Sometimes it’s necessary to look at situations from this perspective, especially when you’re an entrepreneur trying to build a business. Opportunity costs will be everywhere.
Be Mindful of How You Spend Your Time
Just as you would be mindful of how you spend your hard-earned cash, be mindful of how you spend your time.
There’s more to life than making money, but temporarily focusing on earning more can help you reach your financial goals quicker. Keep that in mind the next time you find yourself restless, wondering what to spend your time on.