We’ve been spending this month exploring how best to spend our money to get the most happiness.
When looking at the big picture, we learned that there is a certain threshold where having less money will make you less happy.
But today we are going to explore when more money will make you less happy.
Throwing Out the Data
Today’s topic isn’t like that.
There is no universal dollar value at which we all start to become less happy. Instead, we need to decide that point for ourselves.
To do that, we first need to understand the idea of opportunity cost.
Everything in life is a trade-off.
The basic idea of opportunity cost is that when you choose one thing, you can’t choose another.
If I decide to spend an extra $300 per month to live in an apartment closer to the subway, then I can’t spend that $300 on restaurants or save it for a down payment on a house.
If I decide that I’m going to go out with friends Tuesday night, I am deciding that I will not go on a date with my wife or work on a side hustle Tuesday night.
We can only use a limited resource once. If I take a ten out of my wallet and spend it on lunch, that ten is gone forever. This idea applies to our time, money, energy, focus, and any other limited resource in our life.
This is the driving force behind budgeting, and it is a very powerful one. Especially given what we’ve learned this month.
These are budgetary choices that build off of opportunity cost.
If I spend this money on a new couch I can’t spend it on a vacation, and I know that the vacation will make me happier.
This is especially important when it comes to time
We each get 168 hours in our week to allocate as we see fit.
When we are focused on money it can be tempting to use as many hours as possible to earn more.
We can work overtime or just take a high paying job with long hours. We can pick up a side hustle or work on projects that will bring us passive income in the future. In short, we can trade time for money.
And there’s nothing wrong with trading our spare time for money.
But before you make that trade, step back and look at the big picture.
Money vs. Time
More money can certainly make you happier, especially when you know how to spend it.
But more time can make you happier, too.
I can use more time to do things with my family, hang out with my friends, or develop my hobbies, all of which would make me happy, as well. (Plus we can use time to get more sleep and exercise, which both make us happy and healthy!)
A lot of us in the personal finance space lose sight of this.
The main idea behind financial independence is that if you retire young, you’ll have more control of your time for more of your life.
That’s great! I am going for that, too!
But does it really make sense to get there quicker by giving up all of our free time now?
Turning Down Big Paychecks
This all sounds very abstract, so let me give you some examples from my own life.
A couple years ago I was offered a job that paid a stupid amount of money. (Big law firms love young attorneys with lots of trial experience. If you’re in law school and want someone to back up the Brinks truck for you, take a public service job for a few years that will throw you into trials right away before going to big law.)
That much money would definitely be life changing. It would open a lot of doors and create a lot of opportunities.
But the job also had a really high time commitment. I would be expected to put in a ton of hours and work nights and weekends. If a client wanted me when I was on vacation, then I had to be on the next flight back.
While that may work for some people and some stages of life, I wasn’t willing to trade that much of my time away regardless of the size of the paycheck. I wanted to spend time with my friends and start a family with my wife. I wanted to have hobbies outside of work.
The money would have made me happy, but the time will make me happier.
Quitting Side Hustles
I have also quit all of my side hustles.
I worked a bunch of different jobs for a while. As I got more financially secure I dialed back a lot of them and began dropping them one by one. In January, with a baby on the way, I quit the last (and most time consuming) one.
There is value in having multiple sources of income and these side hustles have helped me invest more and have sped my path to Financial Independence.
But I need to balance time and money now. At this point in my life, more money is not necessarily worth giving up more time.
It’d be great to hit financial independence sooner, but not at the expense of my happiness or my family’s happiness.
When is Money Worth Your Time?
These examples are instances in my life where more money would have made me less happy.
Making extra money would require a commitment of time that would take away from my family life, my hobbies, and other uses of time that contribute to my happiness.
This same thinking applies to bargain hunting and in depth investment strategies. Is the time you’re spending worth the money that you’re saving or earning? Could you be doing something with your time that would make you happier than the extra money would?
There are times when the trade-off of time for money makes sense and times when it doesn’t. Make sure you step back and think through what makes sense for you at this stage of your life.
Your perfect point of balance will change throughout your life.
In my 20s I leaned more towards working. I went to law school and usually worked multiple jobs at the same time.
As I enter my 30s I am drifting down the scale towards valuing my time more. I still work 50 hours a week, but I see no need to pile on for extra cash.
Find what works best for you right now, and keep in mind that this will change over time.
Join the Conversation!
What do you think? How much of your time do you trade for money? Has it changed over time? Let us know in the comments!