AskDong

Over a month and half ago, I stated that I was performing an audit on my time. Having time is very important to me as I generally much rather waste money than waste time. I finally got around to putting all the data together, and looking at how I actually spend my time. It’s not a pretty picture. However, I engaged the exercise because I didn’t think I would like what I found.

I spend over 65% of time either sleeping, working or commuting. Of those three things, I only really enjoy sleep, and even there it’s not something I want to devote my time towards. If I exclude sleep, I spend nearly 50% of my waking hours working and commuting. If you’re going to spend half your time doing something, you should enjoy it.

After accounting for the time that I have less control over; sleeping, working, and commuting, I’m left with a little over 8 hours each day to do with what I may. This 8 hours is an average of 8 across every single day, including weekends. 8 hours is not a lot. Nearly on whole hour is taken up by mundane routine tasks such as brushing my teeth, taking showers, getting dressed, and eating. In my eating category I’ve only included meals that I eat alone (or at my desk at work), the rest of my eating is lumped in with socializing as that’s what I’m really doing.

Having cataloged my time, the exercise has only reaffirmed my value of time over money. I really don’t have as much time as I want. Looking at the table, I see not only where I spend too much time (work, commuting, and sleep), I also see where I want to spend more time (relaxing, sports, personal work, blogging, socializing). I feel time constrained much of the time, and I hardly engage in sports activities (including the Gym) that I both want to and know would be good for me. I look at pie and don’t really see much I can squeeze time from. The only thing glaring is how much I sleep. I’m in bed for nearly 8.5 hours a day. I think that’s alot, but I do enjoy it so.

You know that guy. You work with him. You hear him working the phone. Sometimes I’m that guy too. Who is that guy? He’s the guy who’ll spend 2 hours fighting a $20 fee. His time measured by how he’s paid might be much closer to $70 an hour. He might be worth over a million dollars, but he’ll fight tooth and nail to get a surcharge removed, or a fine forgiven. He might even spend hours bargaining for an extra $50 when purchasing a car. The question is, do we want to be that guy?

Yes:
There’s no question that the squeaky wheel gets the grease, and grease is good. I probably spend a few hours a year trying to fight extraneous charges. Sometimes it’s quite easy as it was when I rented a car in St. John and I was double charged my $100 deposit.  All it took was two phone calls, and I got the extra $100 credited back to my card. There are low hanging fruit that need to be plucked.  It’s always worth asking, the question is do you relentlessly pursue?

No:
Sometimes you can spend hours and have countless exchanges to no avail. The best example of this was a telephone bill I received after I canceled service about 5 years ago. I spent at least 1 hour on the phone.  Sent around 6 emails.  Sent two physical letters.  I never paid my bill, but the company never admitted it’s error.  For all I know I was sent to collections on a $9.37 charge. I would gladly trade $9.37 for the two hours of time I spent on the whole endeavour, and the potential damage to my credit score.

Maybe:
Obviously there’s no one answer on if you should spend your time fighting the Man or the Woman. Every situation is different, but from what I’ve learned it’s important to go into every situation with a preset of idea of how much time and effort you want to spend.  Like anything, it’s also important to both understand the specific dynamics and have an exit strategy.  For instance my biggest problem when dealing with the Telecom company was my inability to get a hold of anyone who had any real decision making power.  That’s also why it’s never an effective strategy to get mad.  Anger is rarely effective.  Getting mad at a poor customer service representative rarely leads to results. This is not to say that you shouldn’t clearly make your needs heard, but do so nicely. Ask for a manager nicely. Don’t make threatening demands. Representatives are trained to block, but instead of getting irate, just ask how it’s possible to get around those blockades. Also with my disputed telecom bill, I failed by not having an exit strategy. I should have paid the bill to avoid any potential credit damage. Had I wanted to continue to the fight I still could’ve done so even after paying the bill. Risk vs reward always needs to be gauged.

It’s been a while since my last economic lesson. Today’s topic, Marginal Cost vs. Average Cost. These costs are typically used in economics as examples of how manufacturing companies should make decisions. However like everything in Economics these are universal concepts that are just as easily applied in personal financial and life decisions.

Average cost is the most easily defined. It’s the total cost of production including all fixed costs and variable costs. An example of a fixed cost is the purchase price of the land used to build a factory. Variable costs are the cost of materials, and labor required for incremental production.  Take the fixed the cost and variable cost and divide it by the output quantity and you have average cost.  Total Cost/Q.  Marginal cost is only what it costs to produce the last incremental unit of product and does not consider fixed costs.  As an example let’s say I had brick factory that cost $10,000 to build, and the first 10,000 bricks cost $1 a piece to produce. The average cost of of 10,000 bricks is ($10,000+$10,000)/10,000 = $2/brick.  The marginal cost of the last brick is $1. The marginal cost of the 1st brick is also only $1, and not $10,001. Marginal costs since it ignores fixed cost only include the the cost that goes into the decision of producing another brick.  A producer should always be willing to produce and sell a product at or above the marginal cost. If I owned a brick factory, I wouldn’t be looking to get $10,001 for my 1st brick to recover cost. As long as I can sell the brick for $1 or more, I’m economically compensated enough for the production of the brick. Producing or not producing a brick to sell does not affect whatever investment I’ve already made into the factory. If I make or don’t make any bricks, the factory still costs me $10,000.

As you can see from the graph above marginal cost can be volatile, changing dramatically with each unit. If you were just to look at average cost, the volatility marginal cost is masked. Also, implicitly as average costs rise marginal cost must be above average cost, and when average cost is decreasing marginal cost is below average cost.So what do marginal cost and average cost imply in our everyday lives?  I think many times we make the mistake of considering average cost when we should really be considering marginal cost.  The average cost of anything easy to calculate - it’s simple division.   More than the fact that average costs include fixed costs, and marginal costs don’t, marginal cost more accurately reflects diminishing marginal returns on productivity.  This nearly universal economic concept implies that increasing the variable inputs into production, material and labor, there is decrease in the rate of output. I imagine we have all seen this in our own work experiences.  For instance I often pick up subs form subway, and one of the shops recently added another 2 workers.  They used to have 3, now they have 5. However the line for subs doesn’t move 66% percent faster. It moves faster but there’s a decrease in productivity of each worker. There is only so much counter space, and still only one register.

The area where we need the put the most consideration of marginal cost is how we use are time. For instance, I like many other personal financial bloggers probably spend too much time on our personal finances. For example I probably benefit on average $75 per hour spent on my finances. I estimate I spend about 50 hours year on my finances not including the work I put into the blog.  I probably save/earn an extra $3750 for an average of $75 per hour spent working on my finances. While it’d be great to think that I earned/saved another $75 for each extra hour, the real calculus is what benefit do I get for the next hour spent? Probably very little.  The marginal cost of my time at my current level of effort is probably closer to something like $5/hour rather than $75. I’ve exhausted all the easy places where I can save and earn money. I’m earning 5% on my savings instead of the .5% I was earning before. Now as I chase interest rates, I’m looking at increasing that rate from 5% to maybe 5.5% percent at best which hardly compare to the 4.5% improvement(actually more like 3% since rates were lower back then) I saw when I first started chasing savings yields.

I often approach personal finance from a time perspective.  I firmly believe time is money, and what I really want is more time.  Give me enough time, and I’ll probably have enough money.   Many experts suggest that over the course of week or month that we should tally what we spend our money on.  They say carry a notepad and take notes.   I’ve done this in the past, and found it an incredibly useful exercise to see where I was really spending my money on.  It was probably one the first exercises I did when I was looking to get my financial house in order.

Today, I know where my dollars are going, and am happy with the allocation.  I only “waste” money on what I want to waste money on.   I ask myself now, can I say the same about time?  I’m often frantic, and when I’m not I complain about how little time I have.  However, I really don’t know where it goes.  Some people keep immaculate calendars.  I don’t.  I try to make sure my meetings are scheduled on my calendar at work, but that’s about it.   On the most part, I have little idea where all my time goes.

If it’s time that I’m really concerned about, I should be tracking it in some form.  I’m never going to be the type of person who keeps a super organized calendar, nor do I want to be.  What I do want to ensure is that I’m not wasting my time.  In the next week, having started today, I’m going to track how i spend my time down to the 15 minute increment.  Fifteen minutes may not be good enough for billing lawyers, but it’s good enough for me.

The point of this exercise is not to learn to keep a better schedule, but to be more efficient.  Effectively, I want to cut out the “lattes” in my schedule.   I don’t want to waste my time.   I moved last year to cut down my commute time.  However, it’s time to look again at where I can steal some time back from.  Check back with me next week to see how I’ve done.