We’ve talked a lot about “trading time for money” and how this is a poor way to get rich. Without being paid on performance metrics at minimum… the path to getting rich is significantly more difficult. The opposite is also true. If you can spend money to buy time it can accelerate your earnings. The catch of course is finding a way to monetize the free time. Below we’ll provide a brand overview of buying time.
Type of Time to Buy
Functional Time: This is the most valuable form of time. Lets assume the human body needs ~8 hours a day to sleep this leads to approximately 16 hours of “functional time”. We’ll go ahead and cut out an hour as well (waking up process, going to sleep process etc.). You’re left with just 15 hours per day to dedicate towards 1) earning money, 2) exercise/health, 3) having a fun social life and 4) hobbies. From those categories alone we can see that purchasing time needs to unlock items one and two (money and health). If you’re paying to unlock more social life activities or hobbies, you’re likely in the 8 figure range of net worth. Since 99%+ of the population does not have access to 8 figures, we’ll focus on the first two items.
#1 Commuting (Basic Level): We’ve never understood why people own cars if their income is currently sitting at $50,000 a year. Lets say some bad decisions were made and you’re making the average/median income of $50,000… In this case, killing your transportation time is the best “bang for your buck”. You’ll decrease your annual expenses and *increase* your income if you’re interested in getting rich. By using public transportation you’d be better off over the long-term and would be “motivated” by being in that environment in the first place. Run the quick math.
If you’re generating $50,000 a year that is roughly equal to $25 an hour (assumes 2,000 work year). Taking that and applying it to the cost of “car ownership” you’ll get to a number that represents around 10% of your annual net income. Seems like a stretch? Not quite. Even if you drive ~1,000 miles a month that would equate to $1,200 in gas (at 30mph and $3 a gallon) in addition we have to factor in depreciation, insurance and of course the up-front cost of the car multiplied by an annual return. To keep it conservative lets say the total cost is $3,000/year… That would be 6% of your gross income. But. Your payments are after tax so we’re looking at 8-10% of after tax income.
While people will attempt to rationalize this amount of spending, we’d also factor in the time lost. A net loss means that it is quite difficult to do anything productive. Difficult to read, difficult to write and difficult to focus since you’re putting your life at risk along with others every single time you try to take your eyes off the road. Think of driving a car as “sunk time”. Sunk time is the definition of inefficiency as you’re unable to accomplish anything. Even if you try and listen to audio books you’re better off being on public transit reading since you’ll consume more information (besides if you’re not where you want to be taking public transit is perfectly fine). In a rare case we agree with frugality websites here because there really is nothing gained by driving yourself since that time can be used to: 1) respond to emails or 2) read. As a final note, there is nothing wrong with having a car and we’re not advocating public transportation for people making large amounts of money. We’re saying that it’s the best bang for your buck and reducing “time lost” is what you’ll need to do if you’re starting from ground zero. Every hour you have needs to be spent wisely since you’re trying to play catch up/get ahead.
#2 Paying for Organization (Middle to High-end): With the biggest time suck out of the way (commuting) you can then look to organizational tasks that are eating up your time. Organizational items include: 1) cleaning, 2) laundry, 3) cooking and 4) booking. We’ve placed the items in that order because it is likely going to give you the highest return on your time. Most people focus on laundry services first but you’re more likely to benefit from a maid service on a bi-weekly or monthly basis when compared to standard clothing.
Cleaning services will cost at maximum ~$200 a month (we’re sure there are higher numbers, however, a smart person can spend around $200 and be perfectly fine on a monthly basis). This would represent around eight hours of wages at a $50K income level. Or it would represent two hours at a $200K income level. Somewhere around $150K it becomes logical to outsource your cleaning as you’ll likely free up more than three hours of time with a cleaning service. The key is that you’ll need to spend this free time earning money. Do some quick math the next time you’re in your home/apartment and see how much actual time you spend keeping the place organized, you’ll be surprised to find that its well north of 3 hours.
Laundry services are next in line. Typically, your white collar professional tries to outsource this item first… even though he’s better off hiring a cleaning service. If you’re running your clothes through the wash you can use the spare time to work on anything you like. You’re not losing much time clicking “on” for a washer/dryer since you’re going to be in your home in the first place. The reverse situation is true for cleaning services since you’re physically losing time organizing your place. Once you’re in the ~$250-300K bracket, you’ll want to free up the two hours or so per month you’re *spending* on organizing clothing. In this range you’re better off making a few phone calls, editing your website, writing code (insert any activity that makes YOU money). The amount of time spent can be freed up for a similar cost.
Cooking services are the third item to look at. This is when you’re getting to more extreme levels of income. It doesn’t take much time to order food or to drop by your favorite places to get food. You’ll go down the cooking service line of thinking when you’re no longer interested in tracking your own diet. We’ve got mixed views here since tracking and monitoring food can be rewarding as you figure out what types of vegetables, fruits etc. lead to positive reactions in your body (the basics are covered in Efficiency). Once you feel comfortable with your general diet needs and see no reason to *tweak* your diet in the future you can go down this route. As you can tell by our writing here, we’re still on the fence since we’re constantly changing our diets to see if our bodies respond positively (as a final note, yes your taste buds do change as you age).
Booking services are last. This is when you have your own assistant for all of your scheduling/time management. This is standard in a corporate environment where an assistant takes care of your expenses, travel booking and is “first line of defense” to avoid spam phone calls. Generally, it takes quite a lot of really justify this level of time saving when you’re running your own empire. We’re nowhere near that level of need given that most items can be added to a calendar in a few clicks but if you get to that level congratulations on making it to a high 8 figure or 9 figure net worth!
#3 Paying to Earn Money (Every Single Level): It sounds contradictory since most people look at earning income on an “hourly wage basis”. In this environment, paying for services to unlock more money does not seem plausible. This is also why frugality blogs focus intensely on using all of their effort to cut costs (after all their earnings are capped at time-dependent intervals!). Lets look at the biggest purchases that can earn you more money: 1) customers, 2) sales, 3) design/image and 4) “R&D”.
Customers are the hardest to convert and the most profitable to go after. If your company generates a 50% profit margin, you can spend quite a lot of money on traffic/advertising. Assuming you’re generating $100K a year in operating income (example) you can spend the entire $100K assuming that you’ll generate $201K in sales (you’d make $100.5K in operating income instead). This is why investors focus so much on the “addressable market” and the “audience”. It is because the niche you’re targeting is going to determine how many buyers there are to begin with. Once you can focus in on that group and target them directly, it’s simply about getting them to click “buy”.
Sales representatives would come next. It should come as no surprise that the second thing you’ll look for (after the customers of course) is a solid sales effort (assuming your product is done). Look no further than standard affiliate marketing or the SG&A line item for every single company in existence! If you have a solid set of customers you may need some soft touch relationships to keep it going (recurring revenue). In addition, those same sales representatives can help you convert the “no’s” to “Yes’s” during their down time. Similarly, you’re looking for the same dynamic where your total amount spent needs to generate a higher operating profit number when compared to your “stand-alone” set up.
Design and image is significantly more difficult to quantify. Here you’re making slow and modest adjustments to how you’re perceived which can help you change your target market. Look no further than your typical musician/actor. We’ve all seen the same story over and over again. When they’re young their personalities are targeted towards people in the 13-17 age group and as they get older they are told to “evolve” and end up becoming more and more “edgy” with tattoos or small misdemeanors and other click bait gossip type activities. Some go entirely off the deep end and suffer from serious issues, however, the transition was expected to happen. Difficult to profit as a musician at age 40 targeting teeny-boppers. While this is an extreme example, you can take the same concept and apply it to any Company. Are they targeting the high-end or low-end? What age group? What other products could fall under the same umbrella? All of this is taken into account as companies grow. For more specific examples, look at high-end retail and see how many companies are forced to take “branding set backs” and target slightly lower price points to expand their market while maintaining the perception of being exclusive/luxury (Coach, YSL and even Tesla are examples).
Research and Development is last only because we know absolutely nothing about making a technology product. R&D is supposed to 1) keep your product ahead of your peers and 2) help expand your company into new categories without changing the Company perception in a negative way. If you’re selling white label consumer based products there are clearer directions: 1) perfumes could expand to mens colognes, 2) suits could expand to casual wear, 3) Books periodically become movies, so on and so forth. Unless you’re trying to make millions upon millions of dollars you’ll unlike need more than a couple of good ideas with solid marketing making this last on the list for yet another reason.
#4 Travel: We touched on this topic in our post on “End of the Road“. We’ll add it here although it will likely be obvious for everyone (including mid-career people). When you’re done, the biggest headache is saving time. You don’t want to burn any unnecessary time so here is what you end up doing: 1) living right next to where you typically go out, 2) you know your city extremely well and yes you might even take the train! Why? Well who wants to sit in rush hour traffic if you know the train is faster… You’ll remain rational, 3) you’ll hate indirect flights and will happily fly economy if this means avoiding the standard 1 hour layover in city you have no interest in and 4) you will pay up for expensive travel if there is no other option (extremely rare) and 5) if you do end up becoming ultra-rich you’ll pick up net jets accounts or own one. We’ll wager the vast majority of people can make it to the third bullet (where flying business class is normalized behavior) however reaching level four and five takes a lot of good luck and effort.
