Saving Money and Saving Time

 When to Save Money and when not to save money: The opportunity cost of saving money

My father’s income is 4 times greater than mine. Yet, if I have to pay $1 (£2) for car parking I do not mind, yet my father does mind, and will perhaps walk along way to avoiding paying the dollar.

The problem is that when we get into a mind set of saving money, we can sometimes loose perspective. There is an apocryphal story about how Bill Gates wouldn’t travel first class because he thought it wasn’t worth it.

Both of these are good examples, of saving money in the wrong place. Everything we do has an opportunity cost. If we pay $1 for car parking, the opportunity cost is that we cannot spend the $1 on other things. However, the opportunity cost of walking half an hour to avoid paying $1 is that we loose 30 mins that we could spend on something more productive.
Therefore, it is always a good idea to place a value on our time. If we get paid an hourly wage, this gives us a good idea. For example, spending 30 mins writing a blog post, may be worth $20 in the long run. Therefore, if I can spend $1 to save 30 mins, this means that I have an extra opportunity to earn $20. Therefore, the opportunity cost of not paying a dollar for car parking, is that we loose out on $19. ($20 – $1)

With the example of Bill Gates the opportunity cost becomes even higher. The hourly income of Bill Gates is hard to quantify; let us take an absurdly conservative estimate that his hourly earning rate is $10,000. Now suppose that to upgrade to first class costs an extra $1000. Is it worth Bill Gates going second class? True, he saves $1,000 but maybe in second class it is more difficult to rest and work. Therefore, if he wastes 1 hour through being kept awake by screaming babies, he is loosing out on his productive capacity which is worth at least $10,000.

This does not mean we cannot look to save money, however, we should discriminate and decide whether it is worth it. Is it worth paying $10 to get groceries delivered to our door? Well, if our hourly rate is more than $20 and deliveries save us 30 mins then yes it is worth it.

Clearly the more we earn, then time becomes more important than saving the odd dollar.

Also, we should prioritise in our money savings. Looking around for the best remortgage quote can save us $100s a month. Clearly this is worth considerable investment of our time. Searching for best gas supplier may save us about $10 – $20 a month. This is clearly worth doing, but it should take up much less time than remortgaging. When it comes to saving the odd pennies, is it worth walking 30 mins to the supermarket, just so we can get a loaf of bread 10 cents cheaper?

Conclusion

Place a value on your time. It is important to try and save money, but it is also important to save time as well. Not get annoyed about paying small charges. Priorities so you look to make the big savings.