Cost of a cold one can really burn
In finance, we are constantly talking about the time value of money. But in life we now have the basis for calculating the money value of time. A minute for someone earning $100,000 a year is worth 61¢ in cash. Waste a minute and you waste 61¢.
On that basis, brushing your teeth costs you $1.22, boiling an egg costs you $2.13, travelling to work (40 minutes) costs you $24.40 on top of your fare. More seriously, a VB stubby appears to cost $1.66 but under the money-value-of-time formula, a VB actually costs you 2.72 minutes of your life. A carton costs you one hour and five minutes and if you take more than 2.72 minutes to drink each bottle instead of earning money, it gets even more expensive. On top of that, if you drink the whole carton and spend 24 hours with a hangover, it actually costs you $517.20 of lost earning capacity on top of the cost of the case. That's $23.21 a bottle. Expensive stuff.
And the more you earn the more expensive everything becomes. On $150,000 after tax, it's 87¢ a minute, and for someone earning $200,000, a minute of life is worth $1.11. Of course, earning $200,000 is great, but it does mean you only have 1.5 minutes to drink a VB before it is more expensive to drink it than it is to earn it, and if you drink a boxful and lose 24 hours of earning capacity, it costs you $1638.40.
Let's look at something else. On the average wage:
■ Every $10,000 you spend on a car will cost you 58 working days or 1.9 months.
■ If you have a mortgage paying 7 per cent, every $10,000 repaid over 20 years will cost you 224 days work or 10.8 months to repay.
■ A $100,000 mortgage costs you 8.98 years of your life to repay.
■ The average mortgage of about $367,000 will, if paid back over 20 years on the average wage, cost you 32.9 years of your working life.
■ Even on $200,000 a year the average mortgage is still going to cost you 10.7 working years.
And all this is, rather amazingly, before you actually eat. For brokers it looks like this: if you want to earn $100,000 a year and you do an $80 minimum-commission trade, of which you get say 45 per cent of the commission, after paying tax you have to do 11.1 trades a day, in which case you have 43 minutes to talk, execute, report, follow up, do the admin, monitor the trade, talk about it, take the blame and revel in the glory before the trade becomes a loss in money value of time terms. And that's before netting off your other costs, such as trading errors and settlement issues.
Money is time and this is just the hard numbers calculation. For some people, time is more valuable depending on what you do with it. A minute schmoozing your spouse, for instance, is more valuable than a minute being grumpy about the fact that the Dow Jones just fell 353 points. On this basis, debt can be a lot more expensive than you think. Under the money-value-of-time formula you cannot quote the hard cost of debt without taking into account the "soft" cost of debt, which is the devaluation of time lost worrying about the debt that could have been better spent schmoozing. Worrying about debt makes it doubly as expensive because of the cost of the lost opportunity to spend the time doing something worthwhile, like being happy. We all spend so much time worrying about making money, but you can do just as well by enhancing the value of your time spent not earning it. It may lose you $36.74 an hour but drinking VB and schmoozing your spouse, if it's time well spent, can work out to be very cheap.
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Frequently Asked Questions about this Article…
The money‑value‑of‑time converts your earnings into a per‑minute or per‑hour rate so you can compare the cash cost of something with the value of the time spent. The article uses disposable income divided by 250 working days a year and eight hours a day to get an hourly rate (for example, an average disposable income of $43,100 works out to about $21.55 an hour or roughly 36¢ a minute).
Using the article's examples of post‑tax disposable income: a person on $43,100 has about 36¢ a minute; someone earning $100,000 a year has about $36.74 an hour or 61¢ a minute; at $150,000 it’s about 87¢ a minute; and at $200,000 it’s about $1.11 a minute. These rates show how the value of your time rises as your income increases.
You can add the time cost to the purchase price. The article gives examples (based on the $100,000 earner example): brushing your teeth costs about $1.22 in time value, boiling an egg $2.13, and a 40‑minute commute costs about $24.40 on top of the fare. A VB stubby that looks like $1.66 can effectively cost you 2.72 minutes of your life; a carton can cost about one hour and five minutes.
Yes. As your per‑minute earning rate rises, time‑intensive leisure becomes costlier in terms of forgone earnings. The article notes that at $200,000 a year you only have about 1.5 minutes to drink a VB before it becomes more expensive than earning the same time back, and if you drink a whole box and lose 24 hours of earning capacity it could cost you thousands in lost earnings.
The article translates large expenses into months or years of work: every $10,000 spent on a car costs about 58 working days (1.9 months) on the average wage. If you have a 7% mortgage, every $10,000 repaid over 20 years costs about 224 working days (10.8 months). A $100,000 mortgage can cost about 8.98 years of your working life; the average mortgage of $367,000 could cost about 32.9 years of working life if repaid over 20 years on the average wage.
The 'soft' cost of debt is the devaluation of time spent worrying about debt—time you could use on productive or enjoyable activities. The article argues you can’t fully measure debt’s cost by interest alone; worrying about debt can make it doubly expensive because of lost opportunity to spend time more meaningfully.
The article gives a broker example: to net $100,000 a year with an $80 minimum commission trade and receiving about 45% of the commission after tax, a broker would need to do about 11.1 trades a day. That scenario leaves about 43 minutes to handle each trade’s calls, execution, reporting, admin and follow‑up before the time cost can erase the trade’s value.
Treat money as time: compare the cash price of purchases and debt with the value of the time you’re giving up. Factor in both hard costs (interest, purchase price) and soft costs (time lost worrying). Also consider the non‑monetary value of time — some time spent not earning (for example, schmoozing with a partner) may be worth the forgone earnings if it enhances your wellbeing.
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