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Thursday, February 11, 2016

The Time Paradox

Posted by Tim Stobbs on December 7, 2015

Everyone is equal in time.  Just we happened to actually manage to forget that a lot which causes all sorts of interesting side effects in our lives.  We all have the same 24 hours in a day. Despite all the time management tips in the world you can’t add time to your day, week, month or year.  Time is one of the great things in this life as it is completely fair playing field for everyone.  Time doesn’t give a crap if you are worth billions or don’t have a dollar to your name: you still get the same amount each day.

Yet oddly enough people will often perceive their time as being more valuable than yours.  This often done on a basis on how much income you make thus your boss who makes more than you will consider his hour long meeting more important than your meeting so you are asked to reschedule your meeting. Or a person will cut you off in traffic as they are under the illusion their time is more important than yours thus they need to be that car length in front of you to get to work an entire three seconds earlier than you.  Yet that perceive monetary value of time is purely an illusion (most of the time). Since people can’t often sell there additional time at will (unless perhaps your a consultant and can choose to pickup more work), instead for people on a salary they can’t sell an extra hour to earn even more (unless you have  a second job or side business).

So this particular idea thinking your time is more valuable than others  leads people consider themselves time starved when in fact they really do have the same amount of time as everyone else.   This belief around their time makes results in them doing entirely stupid things in order to ‘gain more time’.  For example a common one is hiring someone to do something you can do yourself: like cleaning the house.  They justify the action by saying their time is more valuable than then cleaning staff thus when they ‘buy’ that extra hour a week.  Yet what people often fail to realize that how long you need to work on an after tax basis to earn the money to pay for the cleaning staff (or the fact as I previously mentioned lots of people can’t sell additional time easily).  So it is entirely possible that paying someone to ‘gain’ an hour a week may in fact cost you 1.25 hours of work time.  Net when you do the math you actually be behind.

Another problem of considering the dollar value of time of your time is the fact you ignore the fact that your time can not be replaced or exchanged.  Exchanging time for money is common as dirt now a days, but time itself is actually fairly priceless as you can’t get it back.  Once you sell an hour of your life you can never get it back, so in fact on a monetary basis time’s value to can be infinite.  It just depends on what part of your life  you are selling that time from.  For example, if you are referring to as waiting for an appointment is perceived to by a low worth period of time while the last hour of your life to say goodbye to your love ones is literally priceless.  Yet in the end, you can’t get a refund on your time spent and you can’t go back and swap out part of time for other parts.  Each moment is literally a priceless piece of your existence that you will never get back.

So how do you mange your time to extract the most value from it?  I personally like to think back to your happy  memories and consider what you were doing at that moment.  Likely it was spending time with friends, doing something enjoyable to you, or accomplishing something meaningful to yourself.  The odds are your happy memories likely have nothing to do with taking out the trash, brushing your teeth or attending a staff meeting.  Then if you consider the fact if you are sleeping eight hours a day you are blowing through a third of your day being unconscious.  So if you add up the happy times versus everything else you would likely find a 80%/20% split over even 10%/90% where the majority of your time isn’t doing things that make you happy.

Once you see that you can notice to make better use of your time you should focus on making the happy times a priority in your daily life.  Forget about your times perceived monetary value but in fact consider how rare it is to actually feel joy in your life.  Then if you can increase your happy time by just 5% of your year you will likely be significantly more satisfied with your life.  So make time for that which you enjoy, stop worrying about work and actually take your lunch hour to do something you like: reading a book, go for a walk, or visit with a friend over a coffee.  Make the opportunities for being happy in your life more frequent and you will get better value from your time than worrying about how busy you are.

So how do you make being happy a priority in your day?  What do you like to do?

Retirement Basics: Spending

Posted by Tim Stobbs on December 5, 2015

When planning your retirement you need certain basic things that just really can’t be avoided if you want to have a good plan.  This isn’t to say your plan needs to be a 332 pages bound document with appendices, but rather you need to have an idea of what you want to do, how you will get there and what everything will cost.

Ironically when starting planning most people start the the wrong spot.  We want to think about all the wonderful things we would like to do with our new found free time or we want a savings target to work towards. Wrong. Stop. Halt! Wrong idea folks.

What you really need to start doing is so basic it isn’t even funny. You need to answer the following question:

Where does your money go right now?

Yep, that’s it.  Not hard right? Well expect it seems that most people don’t have a bloody clue where all the money goes each month. So let’s start with how many dollars did you save last month?  Do you even know or have a clue on how to find out? I suggest starting to look at your transactions in your chequing account.  What investments do you normally make and what do you save for? Kids RESP, did you put money aside for a house down payment? Also did you remember to include your pension deduction or group RRSP that came off your cheque prior to going into your bank account?  After a bit of effort you should be able to find out that number, just don’t include any delayed spending such as saving up for a vacation or your annual house insurance bill.

Now the second part, what on earth are you spending your money on?  If you look at your credit card do you even remember all that times you used it?  After a month it can get a bit fuzzy, which is why I signed up for Mint Canada which pulls all that information together for me.  Then I sit down with my wife and we classify the spending about once a month.  It doesn’t have to be perfect, but it should help give you an idea on where the money is going.

The last part of your spending is going to be hard if you use it: cash.  Cash is so easy to spend and not keep track of, so I installed a basic spending tracking app on my phone and then enter in a note when I spend cash.  Other people like paper and keep a notebook.  So people just keep receipts for everything and enter them in a spreadsheet once a month.  Try out several different means to track your little spending.  Just don’t worry if it isn’t perfect.  I still miss the odd transaction myself, but typically it is under $5 in a month.

Now armed with this information you can do some fun calculations like: your after tax savings percentage.  To calculate add up all your savings and divide it by your take home pay plus any pension savings.  A month of data for this is okay, but a year is even more accurate.

So it would look like this: (savings including pension)/(take home pay + any pension savings taken off on your pay stub).

This one number is basically all you need to start your retirement planning as it will tell you how long you have to continue to work at your current lifestyle assuming you have nothing saved already or very little.  The results go something like this (see here for more data points):

  • 5% or less – I hope you like slavery because your job is going to feel like that for the next 66 years.
  • 15% – You have a 43 year career ahead, so if your twenty this may be okay otherwise that could suck.
  • 25% – It’s now down to 32 years which is actually potentially okay even if your 30 years old.
  • 50% – Now we are talking, you are down to a mere 17 years of work.
  • 75% – Holy cow, you are good at savings you could be out in a mere 7 years.

So now you can see the consequence of having a low amount of savings %, you will be working for a VERY LONG TIME! Of course if you already have some savings you can divide that by your yearly savings rate and deduct that off your years to work total.  So if you save $15,000/year and you already have $30,000 saved you can deduct two years off your result ($30,000/$15,000 = 2).  So if you got 32 years as your result, you would actually have only 30 years of work left.

The point here is to realize that by choosing not to save you are also choosing a long working career.  Most people never realize this is the case and so you need to start here when you plan your retirement.  That way you can actually see the results of your choices regarding spending.  Now you can really look at your spending data from above and ask the question: is this worth it to me?  The one thing made a huge difference to myself on what I spent my money on.  Hopefully it can help you too.

Timmy Fell Down a Well

Posted by Tim Stobbs on November 30, 2015

So you must be wondering by now, did I hit my head and fall down a well and have been recovering in hospital for the last month? Um, yes that would make a good story but the simple fact is I decided at the last minute to do National Novel Writing Month again. So I wrote like 2/3 of my next novel…or ~54,000 words (which is about 216 pages in manuscript format) over the month of November.

Now that is over I’m dropping down to a much saner pace to finish the novel and so you should start seeing several of the posts I started to write in the last month finally get finished and posted.  So I did think about you guys, but didn’t actually finish any additional posts.  On the plus side I’ve learned that I write a LOT faster if I do just a bit more plotting of my work in advance.  Since I typically don’t do that with these posts I’m sort of curious to try the idea out here and see what happens.

But so you have idea on what’s coming, I’ve got some material drafted on:

  • Net worth updates
  • Career history
  • The nature of time and your perceptions of it
  • Government changes and your tax bill

If you have any requests, please let me know in the comments and I’ll add them to my stack of post ideas.  Meanwhile I’m drying off from the well.