When one hears the word “time,” they go through a process of elimination to determine the reference. People use this word in everyday language to describe a value, but often it is in reference to a clock. In which case, time is merely a measuring tool used to determine where you are in a particular moment of life, or where you want to be in the future.
When economists use the term, they are likely referencing a value for time. In this case it’s “future value” or “present value.” We can understand this subtle difference with an economic term called “opportunity cost,” which means the value that one would have gained from the next best alternative choice.
For today, let’s have some fun with the way we can understand present value and opportunity costs.
The biggest debate of every weekend in my house is what to buy at the grocery store for the following week. My wife and I hate this discussion as it can be a huge waste of time. As no surprise to people that know me, I of course created a spreadsheet. Within 10 minutes of, “Hun what do you want for dinner this week?” I can quickly open my computer, find my food generator, click roll the dice, and BAM!
You see that! I have the entire week planned, and now I’m a hero. Not only that, this generator will tell me what to buy at the store and keeps us to our weekly budget. Heck, you could even update it to include the recipes.
The point is, we have to value our time as we can never get it back. The opportunity cost of debating a list, is the time I could have spent doing something else. So, instead of debating, I chose to have a higher present value and go hang with the kids. I could have spent 40 minutes, making a list, but instead I did it in 10 and said done!
For present value, we need to have a true way to measure the cost. Everyone should equate their time spent on something in some sort of numeric term (yes, this is the Economist in me). It can be in terms of dollars, or even on a ranking scale. I personally choose to measure things with a ranking scale from 1-10, with 10 being the most desired, because it keeps all my choices in perspective. Debating is only worth like a 1, whereas saving 30 minutes is like a 4. Thus, I chose to save time because it is ranked higher on my scale. Now that I have saved 30 minutes of my life I can go hang with the kids, surf, eat, or enjoy the outdoors that much more.
In order to enjoy life to the fullest, and take in each moment as they come, we must constantly value our time. Doing so with every choice, and using a rational perspective for our decisions is what helps us live at the higher ranking of our scale all the time.
Of course, we can’t always make decisions based on the present value, so stay tuned for the future value discussion.
Clock photo credit: Lukas Blazek