Only My Work Is Making Me Money
January 23rd, 2006 by MarkToday, I was hanging out with my old buddy and co-worker Mike W. for the first time in about half a year. I have to admit he was something of my archetypical ideal of a spendthrift. He earned at least 50% more money than a normal family of four, but he didn’t save much. He ate out at expensive restaurants, and even ordered 400台幣 meals to wolf down between classes. I made occasional remarks in the office about the glories of living below one’s means, but nobody really seemed to agree with me. He did have really cool tech toys…
And today? He showed up at our friend Martin’s place and was all fired up about investing. He was talking about various funds he bought into last year, catching up on his IRA, and even whipped out an investment book in the middle of our conversation and started showing me data on the performance of stocks versus commodities and bonds over the last 200 years.
Martin countered that while investing nuts like myself and now Mike might make some money at it, we’ll be spending our time on it, too. It was a good point. I started to talk about how I don’t really spend that much time, but then Mike had the perfect answer:
Right now, the only thing making me money is my work. But in 20 years, my money will be making me money. Do you really want to have to rely on your work to make you money indefinitely? What if you’re doing that 20 years down the road and you break your right arm? What will support you then? What about when you’re just too old to work?
I absolutely love that line of reasoning. I agree that while your net worth is low, it doesn’t make sense to spend too much time on investing. I’d probably have more time if I’d just bought an index fund and took all of the time I spent investing and spent it working instead. For me, it is something of a hobby. Still, once you have enough money, it really is worth a significant chunk of your time. Think of it this way: how much time do most people spend comparison shopping for things like computers or TVs? How much money will that save them? Then ask yourself how much their entire retirement savings is worth, and how much it’s worth to plan it effectively.
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January 23rd, 2006 at 5:35 am
My friend’s mom is the queen of all coupon queens. She lives in L.A. where competition between grocery stores are fierce, and every sunday she clips the coupons, then files them away until their values are tripled on triple coupon days. In this manner, she frequently ends up paying less than $10 for a $100 load of groceries. She takes those reciepts and stick them on the fridge like war trophies. Before they closed that loophole, sometimes she would have coupons whose value when tripled was greater than the price of the item, thus forcing the grocery store to give her money for taking away their product. As for the spoils, they are warehoused with such efficiency her garage resembles a store. In the end though, it always gets used up as she is too canny to buy anything she doesn’t really need.
Now, my friend’s mom is a pharmacist. Her husband calculated that given how much her time is worth professionally, the time and energy she spends clipping coupons does not compensate her sufficiently. However, she correctly retorts that she does this in her leisure time, and that of she did not clip coupons, she would not be working anyhow. So, instead of comparing clipping coupons with work, he should really be comparing clipping coupons with other leisure activities, many of which (like watching movies or bowling or going out for dinner) cost money.
By this metric, she is coming out way ahead. I wonder what would happen if she devoted the same kind of dedication and mental energy to investment though. Maybe that would not be as pleasurable for her since it will have a potential downside instead of the pure gain and treasure-hunting aspect of coupon clipping.
January 23rd, 2006 at 10:49 am
That reminds me of a study about a basic inefficiency people tend to have- they will work harder to save money on inexpesive things than they will on expensive things. For example, a man might be willing to drive all over town to find a place where he can buy a $70 grill for $60, but he would not expend the same effort to get a $20,000 car for $19,900. Despite the reward being the same, people tend to over value discounts on cheap things, and undervalue discounts on expensive things. If you friends mom put in an extra 100 hours looking for a bargain when she buys a house, that time would likely be rewarded far more than the time she spent collecting cupons and going to multiple stores. The same would be true if she spent that time learing about and looking for discounts on the stock market.