Lifestyle Investing: "Compound Time" Like Compound Interest?

109 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.

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

  1. Something we might consider is that the time one spends “on the job” may actually lead to a compounding of income; here’s how:

    If, while at work, you discover an inefficiency or system flaw and come up with a solution to a significant problem or discover a better process, it may lead to:

    1) A promotion and subsequent increase in income (i.e., a “raise”), or, better yet, 2) the opportunity to create product and/or company that solves the inefficiency or handles the flaw on a wider scale (perhaps a solution for an entire industry). In doing so, one could then grow the company, hiring others to do the physical work, while still producing an income, but having more time (and money) to do things that he or she deems more enjoyable – of course, the possibilities are endless. That said, and in this case, the discovery of the valuable solution was predicated on one actually being at work, paying attention, and identifying an opportunity.

    My $.02 (it and another $1.95 will get you a coffee of the day at Pangea’s in Clearwater, Florida ;- )

    Cheers,

    Clay

  2. Tim I love your work and your life style, I will be at your level soon. I’m really working hard at it. I also really enjoyed 4 hour work week, i find myself reading that 2 or 3 times a year.

    Keep up the good work

  3. I believe this is absolutely true. This is easily conceptualized also by thinking about writing scripts to make things take less time — the more time saving scripts you write the more time you have to write time saving scripts and the better you get at writing scripts! During a lot of my 9-5 job I spend a lot of time figuring out how to make things take less time and I find it to be well worth my time =)

    Furthermore, since time is a resource, there is also a time-value of time just like money. For example, 1 hr of my time today is far more valuable to someone than the promise of 1 hr 20 years from now.

  4. I love your book. I read it over and over again and found the content compelling. Since reading your book I realize the value of my time. I read “The Answer” by John Assaraf, and it was a great compliment to your book. In his book he asks you to put a price on your time and by doing so, you learn to understand how precious your time is. I think when we start putting a price on our time we see how much we can accomplish and in turn use our time wisely. I love the concept of actually charging more for my time. It makes the dreaded 9-5 job easy to leave behind.

  5. Interesting concept. Time is definitely our most precious resource.

    You can save time, invest time, make time. Not sure you can compound it though!

    Oli HIlle
    Author
    “Creating the Perfect Lifestyle”

  6. I was just thinking about this concept and how beneficial it is.

    I like to say to myself (after setting up a time-saving action) “Wow, that’ll pay off in dividends!”

    When you start thinking like this, you actively search out new ways to save time where it can compound itself.