Return on Time Invested

"Time is money... No, it's NOT"
Aug 5, 2016
Financial Safety

We live in a society that highly values money but rarely do we talk openly about it. And because we do not talk about money, there are many misconceptions about money. As the old adage goes "Time is Money". At first glance this statement may appear to be true but really it is deceiving.

Money is infinite, time is not. The amount of money you can have is infinite. You can earn it, steal it, borrow it, lend it, or gift it. The amount of time you have is limited and everyone is given exactly one lifetime. Money has no actual value, it's value is only equal to what people attribute it to be. $1 can be equal to a singular apple or a pound of tea, a cup of sugar, and a quart of milk (as was the case in the 1900's).  Time has an absolute value and it is the same for everyone. No matter what you do, there will always be 60seconds in a minute, 60 minutes in an hour, and 24 hours in a day. It does not matter whether you are rich or poor, famous or unknown, 1 minute for me is the same as 1 minute for you. You cannot speed up time nor slow it down. You are not able to buy more time, nor can you borrow or lend your time out. Time is yours to use however you choose. Which is why one of the biggest punishments we have is called doing Time, because now we are losing something we can never get back.

Money is important, it allows us to acquire other resources that we need. Money allows us to buy food for the table, gas for the car, and luxuries that we could never produce ourselves. Money is the common denominator for resources which is the ultimate goal in survival.  The money itself may not be important, but the resources and the ability to obtain resources using money certainly are, especially if those resources are food, clothing, healthcare, and shelter.

People often get too fixated on the absolute value of money even though we know it's value can change at any moment. We may wish to have a million dollars, but if apples costs a million dollars a piece, all of a sudden we would much rather have 2 apples than be a millionaire. Confronted with the idea that money is not real and time is finite would cause some people to use up their money to enjoy time now. They may justify it by saying that they are enjoying the moment in their finite life but often they overlook or underestimate what they need in the future. They are happy or even proud to go through life with very little money and resources available. They say they do not wish to have money dominate their life. To this I agree with their sentiment but not their approach. One of the biggest shortcomings to that state of mind is that the person may not be ready to handle an unforeseen circumstance. You may not need much in terms of income on your average day to day, but if you get hit by a bus, having those extra funds may make the difference between in terms of quality of life thereafter. The best way to not need money is not by neglecting money but rather to have more money than you could ever need. The best way to have more money than you could ever need is to generate the maximum amount of money you can within a given period of time, which we will refer to as Return on Time Invested.

Return on Time Invested looks not only at the amount of money you can earn but also on how long it would take to earn that money. It is why people get an MBA because they believe that even though there is a cost of time and money up front, in the long term their ROTI is going to be higher. 

We can compare a few examples. A person coming out of high school earning $10 an hour, working 8 hours a day, has a ROTI of $80/day or $3.33/hour. We must remember there are 24 hours in a day and if you work 8 of them each day then your ROTI is lower than your hourly pay. We can contrast that to a college graduate who earns $30 an hour by working an 8 hour day but had to be in school for 4 extra years not earning an income.The college graduate would have 4 years of $0/hr. During the first 4 years, the high school student has a higher ROTI than the college student since the college student has no income. However in year 5,the college student would  have a ROTI of $10/hr ($30/hr x 8hrs/day x 1day/24hrs) but a cumulative ROTI lower than the high school student. By year 6 both would have the same cumulative ROTI and after that the college student would have a higher ROTI. The college student had taken a short term lost, for a long term increase in ROTI. The reason we always look at a 24 hour day is because some sources of income can operate 24 hours a day, such as a website. If a website is about to generate $5 an hour, even though it is lower than the $10 an hour someone may get from working at a job, at the end of the day, the website will have generated a higher ROTI ($5/hr vs $3.33/hr).

By looking at the ROTI, you can assess not only monetary value of something but also the time value. You can decide how to best invest your time which is very limited, to maximize your rate of income and hence resources. If you maximize your ROTI, then even if you are behind in the short term, you will be ahead later down the road.