You Don't Buy Things With Money

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***Updated 4/29/2021***

A couple of years ago, a colleague said he was close to retiring. At the time, Gil (not his real name) was in his mid-fifties. He’s a slightly quirky type who marches to his own beat. Although he worked for a company with tendencies toward corporate think, Gil sported a long beard and tattoos. He freely talked about politics and other matters that most in the corporate world shy away from. He lived in the country with his wife—far away from the hustle and bustle of the city.

It had been a while since I talked with Gil, so his mention of retirement was exciting. I congratulated him. He said he was more than ten years ahead of schedule, mostly because he’d been debt-free—this included his home of many years. He also owned a rental house that still had some debt on it, but the tenants covered that payment.

I loved hearing that he was free of consumer debt and asked him what led him to that point. Everyone who escapes the soul-crushing weight of financial liability has a story about their awakening. Gil revealed that his retirement ability was due to some advice he received when he was younger. Once he fully grasped the concept, his life changed.

Always being on a quest for knowledge that can help me grow, I immediately asked him to share this advice.

He said, “You don’t buy things with money; you buy them with time.”

***

I loved that advice and chewed on it for some time.

It took me back to my sophomore year of high school. That’s when I got my first ‘real’ job. It was 1985, and I bagged groceries for Albertson’s and earned $3.25/hour. I loved that gig!

Interacting with customers, learning new things, and the friends I worked with made it a fantastic first-job experience. Some weeks I worked as little as twenty hours while others could top forty (usually the summer).

When I collected my paycheck, I would calculate how many hours I worked for that after-tax money. Then I would back out how much things cost me. It was a sound system and one I would have been wise to remember.

Unfortunately, I didn’t.

What’s Your Time Worth?

When I wrote this, the federal minimum wage in the United States was $7.25/hour. In my home state of Washington, it was $11.50/hour. We’ll skip any discussions of whether minimum wages are good or bad and just accept the fact that they are.

But the paycheck brought home is a little lighter than that indicated minimum wage. Every employee is acquainted with the tax man. Government must get its taste through federal income tax, state income tax, social security, and Medicare. What’s left over is what you get to spend.

In my mind, taxes are one of the biggest slaps of adulthood. “Nice work on that first job, kid. Now pay up.”

This isn’t a rant on taxes. As a society, we need infrastructure, emergency services, and the military. Instead, it’s just a reminder that we don’t keep one hundred percent of what we’ve earned. I think we forget that sometimes until mid-April when our taxes are due.

So, considering my love for easy math, let’s assume a forty-hour workweek at $10/hour.

40 x $10.00 = $400.00

Now, let’s factor in the total of all the taxes nibbling at a paycheck at 20%. For some, it may be less since they won’t have a state tax. Again, I am using easy math and picked a nice round number we should all be able to do in our heads.

Relax and don’t say, “That’s not what I pay in taxes, man!” Just work along with the concept.

The government’s share is:

$400.00 x 20% or $80.00

What you have left out of your forty-hour work week is:

$400 - $80 = $320.00

You thought we were working for $10/hour when you’re really working at $8/hour.

$320 ÷ 40 hours = $8/hours

Now, here’s where the “you buy things with time” concept comes in.

Your friends want you to go with them to a fancy pizza joint. Sounds fun, right? “Let’s get a pizza and a pitcher of beer,” they say. Well, you’re feeling like a big deal because you’ve got cash in your pocket, so you offer to cover the bill.

The tab comes to $32, and we tip 20%, bringing the total to $38. You pay with cash (you’re responsible that way) and head out the door.

Stop and think about the advice:

You don’t buy things with money; you buy things with time.

How much did that dinner with friends cost you?

$38 ÷ $8 per hour = 4.75 hours.

That pizza and beer cost more than half a day’s worth of work. Was it worth it? Only you can decide.

But I’m on a salary, you say.

Admittedly, it’s been a while since I looked at my expenses like that. Sometime in my late twenties, I moved to a salary-based position. My head was in the clouds, and my financial situation was in the toilet, but I spent like I was a rock star. I had no idea what I was doing.

Now that I’ve cleared up my financial position, I am in the commission-based commercial real estate industry, where I’m paid on deals completed, not hours worked.

I can spend one hundred hours on a deal that dies at the goal line and get nothing for my work. Or I can work two hours on a transaction that falls into my lap, which will feed my family for months. It’s a crazy industry, but I can still do the math. I just have to do it backward.

Let’s assume I make $100,000 per year. Let’s then take 40 hours per week x 52 weeks for a total of 2,080 hours worked per year.

$100,000 ÷ 2,080 = $48/hour

Fantastic, I found an hourly wage, but I still need one more step to help me think in line with the time and money concept.

Let’s raise the tax implications slightly to 25%. As an independent contractor, I’m responsible for the self-employment tax rate of roughly 15% (which covers both the employee’s and employer’s contribution for social security and Medicare taxes). Again, this is a rough number and used only for illustration (easy math, remember?).

So, continuing to work toward an hourly wage:

$100,000 x 25% (tax rate) = $25,000 in taxes owed

$100,000 - $25,000 = $75,000 annual salary

$75,000 ÷ 2,080 hours worked = $36/hour

Okay, so the wage we’re now talking about is $36/hour. That’s still fantastic!

Until I think about buying some new things. How about that pizza and beers with friends? $38 or 1.05 hours. Uh, yeah! Let’s do it.

What about a new 75” Samsung LED 4k Ultra HD TV? $2,300 or 64 hours. In other words, that’s eight full days of work for a TV. Huh. That doesn’t sound so appealing.

How much does a new Dodge Ram truck cost? $45,000 or 1,250 hours of work which is equal to 156 eight-hour days. Are you freaking kidding? I’ll pass.

I’m not saying people can’t buy the Ultra HD TV or the new Dodge Ram truck. But when you start factoring in the cost of these things as hours, it’s a sobering process.

How to Leverage Time

I love talking about real estate and personal finance. Here is one of those opportunities where I can bring two concepts together in a dramatic way. If you’re not a fan of real estate, stick around for a few minutes more. Things are about to get exciting.

Say it with me:

You don’t buy things with money; you buy them with time.

There’s a secret within its words.

The advice doesn’t define money and time as ‘your’—as in your money or your time. Therefore, we can leverage either the money or time of others to help us achieve our goals. It’s the leveraging of others’ time that I think people often forget. We often talk about leveraging other people’s money (borrowing) to buy real estate.

For several years, I owned a duplex. I initially invested my own time and capital to purchase the property. Once it was mine, I received two checks each month that exceeded all my related expenses (mortgage, taxes, insurance, utilities, etc.), which built up a nice annual reserve.

In other words, those two tenants spent their time to pay the mortgage and expenses related to the duplex.

However, what they were really doing was giving time back to me.

Think of it this way. If the duplex profited $300/month and my effective hourly rate was $36/hour (calculated previously). How much time was given back to me? In other words, how many fewer hours did I have to work to earn $300?

$300 ÷ $36 = roughly 8 hours

I got almost eight hours of equivalent work through the cash flow on that property. That blew my mind.

Okay, I know I’m not actually creating time, but I am getting the benefit of their time. It’s not hard to compound that concept. The more tenants I have sending rent to me, the more time I leverage.

I may not be making time, but I’m using it more efficiently. Isn’t that cool?

If you own a business, you may have already thought about the concept of leveraging your employee’s time. I have owned a couple of businesses and did precisely that. But I never applied it to a tenant.

Yet it’s the same concept except that I don’t have to manage a renter’s day-to-day activity. The tenants go about their lives and send me checks on the first of the month.

Final Thoughts

The older I’ve gotten, the more precious time has become. I wrote about a discussion with my daughter that one morning you’re twenty-two years old and the next you wake up to find you’re forty-four.

I had that discussion almost a decade ago, yet it feels like yesterday.

In my youth, I treated time like it didn’t matter. I think most people do. As I got older and realized how precious it was, I started saying, “I can always make more money, but I can’t make more time.”

I thought I was smart with the statement, but I realize now it was just another platitude to make myself feel okay while I was bumbling through life. I gave it no thought.

When we look at money as time, we should be even more careful with it. Only when you leverage the time of others can you begin to loosen the bonds that link the two.