How time determines your freedom of wealth – moneyvsfuture
Money Management

How time determines your freedom of wealth

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What is the most expensive thing in your life? Is it your house, your car, your jewellery or your watch?

Turns out, it is your time…

economic-value-of-time

Can you believe that? Even Queen Elizabeth, who can own almost anything she wants, once said

All of my possessions for a moment of time

We often say that we work hard because we want to be financially free (or at least feel that way), but what really determines our financial freedom is not the amount of work we do, but the economic value of our time.
What is Economic Value of Time
Have you ever asked yourself what is an hour of your time really worth? You probably think this is an irrelevant question because “only MacDonald’s boys and girls are rated hourly”.

It does not matter whether you are a lawyer, a doctor, a small business owner or an office clerk, will you get paid if you stop working? Obviously not.

So we all spend our time serving other people in exchange for a pay check.

We all exchange our time for money. The only difference is how much we are compensated for the same amount of time. – Ivan Guan

If you realize time is really money, you know time is the ultimate constraint of our financial freedom. Whether you are the president of the country, a billionaire tycoon or an office worker, we all have the same amount of time every day.

So when we talk about financial freedom, it is not the amount of money which we should accumulate, it should be the “time freedom”.

To achieve that, our focus should be on the economic value of our time.

How to Calculate the Economic Value of Your Time
If you want to understand what an hour of your time is worth, let me share with you a simple method.

To know how much an hour of your time is really worth, simply divide your annual income by 2,000. – Ivan Guan

You may not realize that 2,000 represents the number of hours you work in a year.

Assuming you work 8 hours a day, 40 hours a week and you work 50 weeks per year (with 2 weeks of holidays), your total number of working hours is about 40 * 50 = 2,000 hours.

So if you earn $100,000/year, your time is worth $50/hour.

Making $150,000/year instead? You’re at $75/hour.

If you work your butt off at 50 hours a week and manage to earn $250,000 last year, your time is worth $250,000 / 2,500 hours = $100/hour.

Now you can take a calculator and instantly know how much is your economic value of time. The question you may want to ask now is, are you well paid?

Make Better Use of Your Time
Once you understand the concept of economic value of time, you can start making a lot of wiser decisions in life. We must realize that at any given time, if we choose to do one thing, we have to give up the opportunity of another thing.

wiser-decisions

As the biggest dilemma of financial freedom, if we spend more money today, we have less to spend in the future.

Let me give you some examples of “time freedom”.

If there is a lunch promotion at a restaurant and you can save 10 bucks, would you queue for half an hour just to get in when your economic value of time is $50/hour?

On the other hand, if you can “exchange” 76 hours for a S$69,600 worth Subaru XV 1.6 (assuming you will buy that car anyway), it may sound like a good idea.

How About Investing for Financial Freedom
Now let’s talk about making money through playing stocks since a lot of people think that is the holy grail of financial freedom.

Does earning $3,000 a month by actively trading stocks sound good?

If you have to spend 4 hours a day (you still got to work) reading financial news, analyzing financial reports and trends, executing and monitoring stock transactions. Your economic value of time is $3,000 / (4 hours x 22 days) = $34/hour, and that is probably lower than your current hourly rate.

I say a lot of people are wasting their time chasing financial freedom through this path. Without increasing your economic value of time, you just won’t be able to achieve the freedom you desire.

On the other hand, if you develop a wealth building system and spend just 30 minutes every week to monitor and execute, even if you only earn $500 a month, your economic value of time is $500 / 2 hour = $250.

I think now you get my point. Unless your passion is the thrill factor of trading stocks (betting to certain extend), you are better off to be in the second scenario and spend the remaining time for more meaningful things in your life.

The Best Things in Life are Free
It took me very long before I realize that you don’t need a lot of money to achieve financial freedom. And most valuable things in our lives are either free or cost very little. I myself is also guilty of spending countless time for some very little money reward.

best-things-in-life-are-free

Like what Jack Hylton used to sing:

The moon belongs to everyone
Best things in life they’re free
Stars belong to everyone
They cling there for you and for me

The flowers in spring
The birdies that sing
The sunbeams that shine
They’re yours, they’re mine
And love can come to everyone
The best things in life are free

If you haven’t, you should listen to this beautiful song:

I hope this article gives you a new perspective about the important role that time plays in our lives. We all start our journey by exchanging our time for money, and I was also guilty of spending countless time for some very little money rewards.

Money did saves us time and gives us security. But I believe the real financial freedom only comes when we can amplify our economic value of our time.

What do you think? Leave your comment below and let us know your opinion…

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