Welcome to the first post about Capitalism. In this article, you will learn about the value of time. I’ll show you the way you need to look at every hour you spend. I’ve read about this lesson somewhere else; I think it was in one of Kiyosaki’s books.
Your personal time is your product. Just accept it. That’s the philosophy I’m following, and that what helps me to use my time more efficiently. It doesn’t always work, but I should say that in 90% of cases it helps.
What Do You Mean Time Is a Product?
If you think I’m crazy by thinking that time is just a product, hear me out. Let’s say, you work at McDonald’s flipping burgers. You are getting paid a minimum wage. It’s probably around $12 an hour. What it means is that you value each hour of your work at that price.
You can normally sell around 8 to 12 hours a day working full-time. Maybe you can do more, but let’s say on average that’s the limit. If you don’t want to get too exhausted, of course.
By exchanging your time for money, you get paid. Sounds good, right? Well, there are a few things to consider. One of the things you need to understand is how much do you value your time and what is the price you’d like to charge.
Before we continue, I’d like to share another example. Let’s say, you have $100,000 on your bank account. It’s just sitting there not accumulating any interest. I do it to keep it simple.
Well, you can do a lot of things with this $100,000. You can put it as a down payment for a house (and rent that property later on), start a business, or simply use it when you’ll retire (by investing it somewhere where it will generate interest). $100,000 is not much, but it’s something.
Because you can use this money to make more money (potentially), we can call it an asset. In this case, you know exactly how much of an asset you have in order to leverage it to generate additional income.
Time Is an Asset
When you exchange your time for money, you can call your time an asset. Because you invest it in order to get a return on that investment. So, if you are flipping burgers at McDonald’s for $12/hr, your ROI (Return on Investment) is $12 per hour. You can invest more hours to get a higher return.
The problem with your time as an asset is you simply don’t know how much of it you have. A lot of things might go wrong. You might get injured and won’t be able to work at all. Or you might die young, so you pretty much didn’t have a lot of assets at your disposal, and that’s why you should always think about the value of time. But let’s not get too dark. That was just a reality check.
Let’s get back to the $100,000 example. Now we are facing another problem. Let’s say you had that $100,000, and something went wrong, so you lost it. Guess what? You can replace that money. Maybe you will have to work harder, or you can win in a lottery, but those assets are replaceable.
Unfortunately, it doesn’t work with time. If you lost ten years of your life doing nothing or making a minimum wage, you lost that 10 years. YOU CAN’T GET THEM BACK! Maybe you are lucky, and you will live long enough, but eventually, you’ll get old, and won’t be able to work hard. So, time is scarce, you don’t know how much of it you’ve got, and it’s not replaceable. So, it leads us to another topic.
Value of Time
Now we need to give some value to the time we exchange for the money that we use to afford something in our lives.
A lot of people are fighting to get a higher minimum wage. And they truly believe that this increase can bring a higher quality of life. Although discussion about the minimum wage should be in a different post, let’s just say, that the issue is more complicated than that. It won’t really bring you a higher standard of life as the change won’t be substantial enough if you increase it from $10/hr to even $15/hr (it won’t happen immediately as the increase usually happens gradually within a few years).
The jump should be quite drastic in order for a change to happen. This 50% increase won’t make much difference if you account for taxes, a possible increase in product prices, and rent increase that might happen as well (yes, your rent will probably go up in the years when your minimum wage will be increasing). On the other hand, if you triple or quadruple the amount you make per hour, it might bring some substantial changes. And the increase should be quick (within a year or so).
Experience and Knowledge
If minimum wage doesn’t change the situation too much, then what does? Well, experience and knowledge are here to help. And even in this situation, I would apply an 80/20 rule. If you don’t know about this rule, you can research it (or I will write an article sometime in the future). But basically, the experience will have an 80% chance for your income to go up, while knowledge will get you only about a 20% chance.
They are both interconnected. You get knowledge in order to apply it on practice and get experience, and experience will lead you to learn more, so you’ll acquire more knowledge. Easy, right? Please note that I’m not talking about education here. It’s a different topic. Education and knowledge are different things. So as education and schooling.
How to Use It?
So, now you know that knowledge and experience bring you a higher income. How do you use it?
Let’s get back to our McDonald’s example. You are making $12/hr flipping burgers. You want to make more. Let’s say, you aim to make $20/hr. Not a huge jump, but it’s already something. It is not really possible to make $20/hr as a burger maker as it’s a relatively easy job. By easy I mean it doesn’t require too much knowledge and experience.
Anyone can get trained to make burgers within a month. They just have to follow a certain set of rules. And since it’s an easy job, you can get a lot of competition. If you stop coming to work, your employer can replace you very quickly as training a new employee is not that hard. Hell, now you can even buy a robot arm that will be flipping burgers for you. Yes, I’ve seen the ads for that arm, and you can see the picture of it yourself.
If you don’t want to be replaceable, you need to get additional experience and knowledge. For example, you can become a manager. You’ll learn new skills and apply them to practice. Here, you just became a bit more valuable as you can do some things others can’t. As a return, this experience and knowledge should increase your income. Sounds easy?
Using Someone Else’s Time
As the final part of this article I’m going to explain to you how businesses operate. Because why not? This way I don’t want to hear complains about businesses using everyone, etc.
Let’s get back again to our McDonald’s example. You work 8 hours a day making $12/hr. Sounds good. Well, how much can you work in a day? Maybe eight hours? If you are young, then you can do 10-12, or maybe even 16 hours (if you are lucky to get overtime). I wouldn’t recommend working more than 12, as you will simply exhaust yourself. Also, don’t work 12-hour days too often either. You don’t want to spend all your time working, do you?
So, what it means is you have a limit on how much you can make a day. Let’s day, you work 10 hours, and make $12 an hour. According to some laws (like in California), two of those hours can be counted as overtime, so you’ll make 1.5 times the hourly amount ($18). This way you cap yourself at $132 a day.
What it means, is that your income is simply limited by the number of work hours you can invest daily.
Value of Time: Business 101
Now, let’s say you worked as a manager, so you understand how McDonald’s business operates. And you’ve decided to open your own franchise. You don’t have to flip burgers on your own (although you could) because you need to spend your time differently.
Let’s say, you flip burgers for eight hours a day. You still have to manage your business, order products, do accounting (to an extent), and many other things.
Instead, you can teach two (in our example) employees on how to flip the burgers. They are going to work in different shifts eight hours each totaling 16 hours. Here, you’ve got yourself 16 hours a day that you can use to do other tasks.
By paying your employees a certain hourly wage, you just leveraged your time. You are still making a profit off your business, but you don’t have to put in the production work yourself. You have someone else doing that.
That’s how business people leverage their time. You simply pay money to someone else to do the job for you while you keep the difference from the income. Here’s a formula for you if you want it:
It’s a very simplified formula, but in general, that’s why businesses can make a lot more money than a single person can. The secret is leverage. And, to be honest, leverage plays a huge role in any business.
Maybe you knew that already, but if you didn’t, I hope, I clarified that for you. Fell free to ask me questions in the comment section below.
I really hope that this article taught you something, and you will value your time a lot more than you used to. I hope that you will use it wisely as it’s an asset that you can never get back. You also have only 16 hours a day to spend (because we need 8 hours to sleep).
Please, share this article with your friends. It will help to spread the information. I’ll see you soon.