Lifestyle Investing: "Compound Time" Like Compound Interest?

110 Comments

berkshire-hathaway-vs-nasdaq.jpg
Berkshire Hathaway vs. Nasdaq (orange), 1984-2004

I met David Hassell in Omaha at the Berkshire Hathaway annual shareholder meeting, and he asked me an interesting question:

Do you think that the value of time can compound like interest?

Three glasses of wine into a post-event party with Cirque du Soleil performers, I didn’t have a good answer, but David recently sent me a thought-provoking e-mail I thought I’d share.


Compound what?

How might better use of your time compound? David explores:

Bear with me, this is somewhat rough at the moment — my initial quandary was whether time, like currency, could be invested to produce a compounding effect. After a bit of thought, my conclusion is that the value of ones time could experience a significant gain, and perhaps a compounding effect over time, given an investment of [that present-state] time in knowledge, skill or other capacity, and a reinvestment of future gains (just like currency).

Money and currency — accumulated excess money — represent one part of your capacity to transact in the marketplace, and can be exchanged for help from others in the form of products or services, including “things” like consumables, depreciable and appreciable assets. Similarly every action you take, whether it be transaction-related or not, requires the expenditure of some amount of time, which is roughly fixed for all of us (say 10,000 working days between the ages of 22 and 62).

Much like currency can be exchanged for appreciable assets that can grow with a compounding effect over time if the gains are re-invested, my theory is that time can be thought about in a similar way, which may lead to more effective action.

To put this in terms of your thinking from your book, lets say you work 40 hours per week simply performing tasks requested by your employer, none of which produce any additional future potential for generating income for yourself.

This is the equivalent of spending your money on consumables or living expenses. It’s single use, and gives you no real future gain, aside from whatever currency you might earn in the moment. Now, you decide to outsource 50% of your tasks to India, producing the same outcomes with 50% of your time. You just doubled the value of your time compared to before (less the additional expense for the help). Now, with that free time, you get more rigorous about working out, studying, and building your networks. You increase your energy, skill, and capacity working with others and manage to produce yet the same results that were taking 50% of your time with only 30%. If you keep reinvesting some of your time in additional gains in your capacity to act, you can theoretically have a compounding effect with the value of your time (rather than time itself). Just like investing currency, the earlier you start this process, and continue to invest in your capacity, the more time your capacity has to compound, and the greater outcomes you can produce during your lifetime.

Posted on: May 7, 2008.

Watch The Tim Ferriss Experiment, the new #1-rated TV show with "the world's best human guinea pig" (Newsweek), Tim Ferriss. It's Mythbusters meets Jackass. Shot and edited by the Emmy-award winning team behind Anthony Bourdain's No Reservations and Parts Unknown. Here's the trailer.

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110 comments on “Lifestyle Investing: "Compound Time" Like Compound Interest?

  1. The baseline of the graph could be Old Rich value of time and the escalating graph line could be New Rich Value of Time.

    I like the picture. Tim “in the O” that’s one of Omaha’s tag lines.

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  2. Very interesting perspective. I imagine the idea of investing, returns and compound interest can be applied to many other aspects of life, too (e.g. relationships, exercise, etc.)

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  3. While investing for the future is the right thing for most everyone, this concept is just wrong. The flaw is that the the ‘investing in yourself’ activities here create a world where the grass is always greener on the other side and you’ll never ever be satisfied. So you get 50% more time, less money, then get a little thinner, a little less stressed, a few extra letters on your resume…you still trap yourself into thinking that you’re ‘sacrificing today for something tomorrow’ instead of actually enjoying your time today as if you might be hit by a bus tomorrow. The cycle would never end.

    Say you’re a smart, motivated, energetic janitor making $10/hour. By this logic, you should hire a migrant worker for $8/hour to do your job and spend the profit going to law school or something. If your boss ever figures this out you’re screwed, fired (the $8 an hour guy gets the job), and still need to pay for law school. Your dreams are even farther away and you just wasted a bunch of your finite time in the process.

    Mr/Ms Janitor should make the most of his present time. They should experiment with the most effective ways to get their job done…play with the variables–their cleansing supplies, techniques, ways to communicate with their boss, ways to collaborate with their colleagues, until they do a spectacular job. They should figure out how to turn their cleaning into a workout. The result: They will have built a network of people they like being around because they challenged themselves to work together well with the other (and thus are happy at work!). They learned people/management skills. They learned about being organized. They got fit. They maybe moved forward the state of the art of cleaning. They can then leverage these skills into a higher paying profession (i.e.sell the idea for a consulting bestseller of ‘winning cleaning techniques for upper management’). The point is that the present tasks were oddly satisfying because it involved a challenge, continuous improvement and constant learning.

    Tim Ferriss talks about how hard physical labor is like zen meditation to him…that’s exactly the point, embrace your situation and learn/milk as much out of it.

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  4. I think the Chris comment before mine is correct in some aspects, but not correct in others. He has just found another map to the territory. I think that both solutions are increasing the value of time.

    In the e-mail, David uses an example from Tim’s book to show how you can structure the same work to give you personally more time to peruse more financially rewarding projects. I would assume that this means outsourcing the things you don’t enjoy or that are not generating revenue at the rate so you can focus on higher revenue generating activities.

    In Chris’ example, the person is investing time getting better at a career in order to move that career forward. I think they are saying the same thing, but David is looking at it from the point of view that the person might be good at being a janitor and has found a way to make it generate more revenue in the same amount of time.

    I think that is the same thing…trying to find ways to generate more revenue in the same amount of time.

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  5. It makes sense. One way to look at it is through the lens of the Pareto Principle. When you dedicate all your time to the 20% tasks (that produce 80% of the result) and outsource the other 80% you have multiplied the value of your time by 4 because if you had focused the same duration of time on the 80% (that produces 20% of the result) you would only have had produced one quarter of the output.

    Perhaps your time can begin to increase in exponential value if you then begin to perform a Pareto analysis of the 20% tasks – for example what Tim did with his email (which is a 20% task). In so doing you yet again increase the effectiveness of your time by a large margin, or factor……………..

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  6. I don’t think that time and money can be measured separately, and indeed aren’t in the above email; I think it makes more sense to discuss them together and speak of wealth.

    For those familiar with Robert Kiyosaki’s definition of wealth (which I think is the correct one), wealth is the measure of time that your automated and/or accumulated money and/or income brings you.

    For instance, if your living expenses are $1000 a month, and you have $12000 in the bank (or have the automated income to create $12,000 in twelve months), you could live on that for a year. You would be “twelve months” wealthy. You could then compound both your time and your money – obviously the idea is to increase both so as to become more wealthy.

    Eventually there comes a point with automation where wealth can essentially be infinite, the ultimate result of compounding! Time and money, especially with regards to the concepts espoused in “The Four Hour Work Week” should always go together.

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  7. Let me be honest, I have no idea what you’re talking about. I’m just hanging around and commenting hoping a few stray souls will be curious enough to click through and read my own highly amusing and informative blog on self development and life coaching. It could happen and I have a theory that, and a desire to seem intelligent or be fleetingly famous by association are the only reasons anybody ever replies to ‘famous’ people’s blogs. Am I being unfair? Probably.

    I did like 4 hour work week though if that counts for anything.

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  8. You can definitely compound time. There is outsourcing of course. But there are other ways also: delegation (you train someone to do your job inside your organization or family- a few minutes of training ), automation (invest a small amount of time to get a machine/computer to do your job for you), ;earning, teaching, systemize etc.

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  9. Quite a thought provoking post, if people say that time is money and money can be invested with compound interest then time should be able to be invested with the same effect right? The logic is there and in some degree is true. Take work for example, as your experience and skill grows over time, your time certainly worth more.

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  10. Interesting post. I just realized how much time I’ve wasted. I need to run out and start a 401K for my time. I don’t want to run out of time before I’m done living!

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  11. Tim-great post. And how did you find time to ponder deep thoughts like this? It looks like you were having too much fun!

    For years I’ve been a believer in incremental improvement with the occasional “aha” moments. I think improvements compound but you can only factor in recent ones. After a certain point you have just moved beyond them to the next level. This requires a new set of skills and the old skills are of lesser impact/importance.

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  12. This is an interesting way of taking advantage of leverage, which in this case is defined as “Positional advantage; power to act effectively.” Essentially, Mr. Kutoff is proposing using global labor arbitrage to multiply your own personal impact.

    While this is incredibly seductive on one level, it do have to agree with Chris above that in the end it seems to play into the “bigger, better, faster, more” mindset that 4HWW seems to oppose.

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  13. This is very thought provoking and gives one a different outlook on time management. Thanks for the excellent post Tim!

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  14. Chris, I think you’ve missed the point. Investing now to get more time in the future only works if you invest your time in that which will lead to more time in the future. Getting a law degree isn’t going to lead to more free time down the road. Quite the opposite. Generally improving yourself to become more valuable as an employee will only make you a better paid employee. Compare this with spending your time starting a self sustaining business.

    Sure we can always make improvements, but we shouldn’t give up trying to improve things because we’re afraid of going to far. When we do spend our time doing unproductive things like sitting on the beach it’s important to recognize what we’re sacrificing to do that. Maybe if we spent that day investing in the future we could have two days on the beach next year. Sometimes it’s worth it sometimes it’s not.

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  15. Interesting point and Chris above also brings up some interesting points which I can’t deny. In many ways, time = money, so that leads to several corollaries (if you believe time = money):

    1) If you can invest in money, there’s no reason you can’t invest your time (which equates to money, anyway, since your time can be thought of in terms of money).

    2) If 4HWW professes that you shouldn’t be overly concerned with investing money in hopes of spending it later, it should also hold true that you shouldn’t be overly concerned about investing time in hopes of spending it later.

    Perhaps it would be interesting to hear how you would tie this idea of time investment into the ideas of the 4HWW.

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  16. Investments in one’s human capital made at a younger age will pay off higher in the future than investments made later in life. The younger you make these investments, the more years of lifespan you have to reap the benefits of them.

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  17. Interesting. I think about it more in terms being able to bend time than I do in creating a greater “value” for your time that would translate into a higher salary or even capacity–those are just additional benefits. If you think of time as linear, you’ll be stabbed continually on the point of your own line. When you are in the zone doing what you love–even if that is doing nothing sitting on the edge of a river- time bends to a much happier shape. That’s the real compounding (and compelling) interest.

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  18. To hell with outsourcing… get out of the rat race and marry someone rich. The tried and true old-fashioned way to free time and wealth !

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