Sometimes an equation is the best way to express an idea. For example, take Einstein’s famous equation:

It’s arguably the most famous equation in the world. In a very elegant and concise way, it ties together three seemingly unrelated elements of nature–energy, mass, and the speed of light.

Another important equation, with only slightly lesser implications on the nature of the universe is the following:

Some people will better recognize this equation as the common saying, “Time is money.”

Let’s look closely on why this is such a profound idea and why it should matter to you.

Time is a Resource

Each of us has 24 hours each day to spend. I say “spend” because we literally spend or trade it. We trade it for the things we decide to do. Because we have lots of needs, we convert our time into other resources that we can use later. In this context, spending time can be thought of as your energy, life force, or vitality.

If you lived thousands of years ago, you would likely spend most of your time hunting and gathering food. Your time would be spent directly on your daily survival. A day’s labors may have only equaled resources for a few days survival. These resources you spent your time accumulating were very concrete like meat, berries, animal skins, and maybe a few rudimentary tools and weapons.

Over the millennia, through specialization, cooperation, and improving technology, we have learned to leverage our time more and more efficiently. Now, depending on skill, effort (and some luck), a day’s work may equal resources for many days, months, or years survival. However, the resources we create today are no longer concrete goods, but instead are an abstract concept we call money.

Money is Stored Energy

Another way of thinking about it if you like physics (doesn’t everyone?) is that spending your time working is like storing potential energy. Potential energy is energy that can be used to perform work later–like a boulder on top of a hill, a loaded spring, or a battery. Work today can be transformed into money, which stores the energy to produce something (goods and services) later.

So, now that you understand how time is money, let’s flip it around. That’s the cool thing about math, you can flip the sides of the equation, and it’s still just as true, but it makes you think about it differently.

When you think about it this way, it’s pretty remarkable. Each time you see a dollar, imagine that it’s a charged battery. You spent your time to produce something of value, and now that value is stored in the dollar ready to be converted back to life energy (time).

When you have plentiful money, you have the potential for wealth. When you have plentiful time, you have the potential for an abundant life. Notice I said “potential.” There are no guarantees. Without some wisdom mixed in, an abundance of time or money can be squandered.

So what are the implications? Every time you spend money, you are spending part of your life. You are trading your current or future life energy for that thing. So the question becomes, is it worth it?

Borrowing Money Mortgages Your Life

If Money = Time, what does it mean to have negative money? Well, of course that is called debt. If overall debt is greater than overall assets, that is a negative net worth. When you spend money you don’t have, you are promising to pay later. This means you have negative time, or in other words, it’s a mortgage on your life.

In the example of potential energy, you have negative potential energy. Instead being on top of a hill (or mountain), you are at the bottom of a hole. Depending on how deep the hole and if you have any tools at your disposal, you will have to spend a considerable amount of future time/life force just to get back to the surface. And don’t forget, while you are busy climbing, the hole is getting deeper due to this pesky detail called loan interest.

Sometimes it makes sense to drop into a hole for a short time (spelunking can be fun!). But, you should be sure you have a good rope to help you back in a hurry. The point is that dropping into money holes should scare you, and you should have a clear exit plan.

Before it became so fashionable to go into large personal debt, there was a term for trading your future time, it was called indentured servitude.

An indentured servant is an employee (indenturee) within a system of unfree labor who is bound by a contract (indenture) to work for a particular employer for a fixed period of time. The employer provided subsistence for his indentured servants, but no wages; he could restrict some of their activities such as marriage, could sell or transfer their contract to another employer, and could seek legal sanctions, such as prison, if they ran away. – Wikipedia

Being in debt makes you a servant to the lender. When you are in debt, your options may be limited.

When you borrow money, you are not only committing to pay money later, you are also committing your future time and energy. The time and energy you spend digging out of a hole, is time taken from some somewhere else.

There are few truly zero-sum situations in life, but managing time is one of them. Time is a non-renewable resource. Once you spend it on one thing, you can’t spend it on something else. The bottom line is that you should be very thoughtful about spending dollars today that may put your future self in bondage.

Building Wealth Buys Freedom

So now let’s look at the up side of the Money = Time equation. When money (assets) exceeds debts (liabilities), you have a positive net worth. If this net worth climbs high enough, you become free.

In the example of potential energy, a climbing net worth is like building a significant amount of potential energy. Instead of being at the bottom of a deep hole, you are summiting a tall mountain. And instead of interest working against you when you were in debt, it starts working for you. It’s like adding a jet pack, and you start to climb faster and faster.

At a certain point, your ongoing needs can be covered by the interest from the accumulated assets. This essentially defines financial independence. Financial independence means you no longer need to spend your time or energy on making money. You can then spend your time (life) doing what is most meaningful to you.

Sometimes people like to dream about what they would do if they didn’t “have to” work (e.g. after winning the lottery). For some, it’s volunteering in the community. For some, it’s writing a novel or learning to paint. For others, it’s going back to school. For others it’s travel and experiencing other cultures.

In this thought exercise, you will discover what you really value spending your time on.

When you are financially independent you can choose how you spend your time. This is why wealth buys freedom.

Take Home Points

• While many have heard that “time is money,” you don’t often hear that “money is time.” This has major implications on your life.
• Spending money you don’t have is like jumping into a deep hole. It’s fast on the way down and very slow on the way up. You may have to spend your life climbing out, and many people don’t consider how high these stakes are.
• Building wealth is like building a battery to store your future life energy. Then the battery starts recharging itself.  The you have the freedom to spend your life doing what you value.

Take Action:

1. Take two minutes to read my follow-up post: Finding the Right Work-Life Balance: Are You Working to Live Or Living To Work?
2. Check out my 20-day Financial Fix. This is a free series of short financial exercises to get your spending lean and and your savings buff! It’s like taking a workout class, except without the hairy sweaty guy.

 

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What do you think? Have you ever considered that Money = Time? Do you think financial independence is possible for you? Would you trade some luxuries for freedom? Why or why not? Share your thoughts below.

Matt Morgan, MD writes about how mastering the FirstHabit is like pushing the power button on your life. Subscribe to his e-mail list and follow him on Twitter and Facebook.