Time Value of Money is one of the first concepts taught in finance, that money now is worth more than money later. Recently, though, I have been thinking about how time in itself has inherent worth and can likely be quantified. I am not talking about how much money one can make during a certain period of time, such as, I can make $20 an hour, therefore the money value of my hour is $20. I am talking about instances where time in and of itself is worth money.
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This concept dawned on me when I was thirsty for water. In many parts of the world, including China, water must be boiled first before it is potable. In my hotel room, I can either boil water and wait 20 minutes for it to cool, or spend $2 on bottled water. Functionally, they are the equivalent. In this scenario, the only thing that differentiates the two is time passed. $2 buys me 20 minutes (assuming that time cannot be used for anything else productive; I am dysfunctional when dehydrated).
I was studying Cash App, a payment service owned by Block. One of the main ways it makes money is through Instant Transfers, where customers can send money to their bank account instantly for a fee instead of waiting a few business days for the free wire to arrive. This is clearly a case where time is assigned a monetary value. Many companies are in the business of making money off of time, or the lack thereof. A UPS Next Day Air is more expensive than UPS Ground. Booking a plane ticket last minute costs exponentially more than booking it months in advance.
It would be fascinating, then, to quantify the money value of time based on how elastic the demand is (how urgent the situation is) and geography. For example, time in Hong Kong may be valued at $X/hour while it is valued at $X/hour in New York based on Uber prices. Other data sources could include Disneyland Express Passes and urgent care fees. Of course, there are always confounding variables — people are rarely only paying for time. But it is nonetheless a huge driver that is understudied. One can then see which time-saving services come at a premium or bargain (and should thus raise their prices according to the comps). This is the topic for another blog post.
How does this idea affect our personal lives? Perhaps think of the money value of time as the risk free rate, and your money-making prowess as your required rate of return. If you know for sure that you can earn $20 per hour, then you are better off spending $20 on something that saves you more than an hour. You can just spend the money and spend the next hour recouping your $20, thus saving the excess time. In other words, you would only pay at most $20 for something that saves you an hour. So you would only make an investment where the returns are higher than the required rate of return (cost of time, ta-da!).
Of course, simple actions combined with the risk free rate can lead to compounding returns. I wish I started lifting in high school. If I had just done 2 sets of bicep curls every day, I would have huge arms by now. Many a times, time is so valuable that one cannot assign any monetary value to it.