Sunil is the author of The Extra Money Blog, a blog dedicated to helping hard working and successful individuals get more out of life, whether it is financial freedom, flexibility in lifestyle design or more freedom to live life on your own terms.
We all like to build our net worth so that we can enjoy a comfortable retirement. Many of us start doing so by educating ourselves about personal finance, and then developing a plan to save and invest for our retirements in a systematic, slow and steady manner. That is absolutely the right thing to do.
Spending less to save more money is a good thing to do, and often times means frugal living. There is another option however that is not often talked about.
Investing Time
We all know we need to invest 10% of our paycheck so we can benefit from the compounding potential of investing over time. But do we ever consider investing 10% of our free time to build a bigger investment portfolio so we can either retire early or retire more comfortably?
I don’t need to rehash the economic conditions we live in today. We all know what is happening to Social Security, and what will happen to it by the time we retire. We all know inflation is an inevitable and necessary evil. We also know that salaries are not keeping up with inflation. You get the point . . .
So why not take matters into our own hands and start investing some the free time we spend watching TV and eating potato chips on the couch to do something productive that can generate in some additional income for us?
For Example
I’m a visual person, so let’s go over Jason’s example to learn by the numbers:
- Say Jason makes $80,000 a year and puts away 10%, or $8,000 of his money away in retirement accounts. I will compound by the year instead of by the month, and not factor in raises, bonuses, etc. to keep things simple. Assuming 8% return on investment, he will end up with just under $400,000 in 20 years. Nice!
- Now say Jason budgets away 10% of his time or 4 hours a week (10% of a 40 hour working week) to build a side business like a blog or website, or freelance and offer services that he is good and skilled at. If Jason makes $80,000 at work, I am inclined to think he can make $20 per hour at the least working as a freelancer. If Jason does this for 20 years, he will end up with an extra $76,800 in his bank account. Eh, not bad…
- Now let’s say Jason takes his earnings from his side gig every year and puts it toward his retirement. Let’s see what the analysis shows us. 10% of a 40 hour workweek is 4 times 4 week per month = 16 times 12 months a year = 192. 192 total hours worked per year times $20 per hour is $3,840. $3,840 plus the $8,000 he puts away for his retirement each year will grow to just about $564,000. Wow.
If we stretch this over a 30 year period, the portfolio amounts to $1.4 million, and if we stretch it to 40 years, we are talking $3.2 million in retirement funds.
So if Jason started working at age 22, at age 62, he would have a nice $3.2 million retirement nest egg.
Conclusion
I realize that we have discounted several other variables from this equation. However, the point I am conveying is quite clear. At Age 52, Jason may decide that $1.4 is more than enough for him to live on and therefore could retire 10 or more years earlier than originally planned.
Alternatively, he may decide to work till age 62 and retire like a rock star with $3.2 million in his bank account. Finally, he could just invest from his $80,000 salary and use the extra cash from his side gig to live less frugally and indulge more.
The point is that he has options, and options are good to have in life. He can retire early, or improve his retirement years, or simply indulge more – the choice is his. But this choice would not be possible if he does not set aside 10% of his time to invest into his future.
Creating options to get more out of life is what I am all about. It is what I live, breathe and blog about. Are you or anyone you know doing the same?
I like it!
I’m currently investing time each day with my website, and I’d like to think that it’s not a waste. You’ve just proved that it isn’t!
I’m currently 25 and my wife is 22. We are still young, but we are already investing and starting side businesses. Our focus is not necessarily to retire early and do nothing, but we would love to actively work in the areas that we love!
Thanks for the post!
You’ve said that right, eating potato chips in front of the TV is profoundly unproductive. For myself, I’ve calculated that the time spent every year researching and investing is generating a nice return, when broken down by the hour.
Time is so much more valuable to me than money these days. (Well, not now specifically since I’m on vacation and the university is shut down, but in general.)
I hate sentences like these:
“We all know what is happening to Social Security, and what will happen to it by the time we retire. We all know inflation is an inevitable and necessary evil. We also know that salaries are not keeping up with inflation.”
Sorry, my crystal ball’s broken, so I actually do not know what will happen to Social Security. I did not know that inflation is inevitable, necessary, or evil – what economic law calls it those words (there are econimic theories that inflation is unnecessary, and the theories that call is necessary are just that – theories, not facts)? Also, some salaries are outpacing inflation, some are keeping in line, so no, I didn’t “know” that all salaries aren’t keeping up with inflation.
Otherwise, this is a nice guest post that makes good points about time and making more money, but sentences like those above make me distrust the author.
The benefit of time in investing is well known! Unfortunately, most people in their early twenties do not take advantage of it. If everyone would invest early, they would be surprised with the results.
Not currently. But I am hoping to soon. It’s hard to balance full time career jobs and a side job right out of college. Especially with those extra variables, student loans, buying a house and being social.
@ LAMF – kudos to getting started early. keep coming back and updating us on your status and what you are up to! great to see young guns go at it from the get-go
@ 101 – in theory it sounds like a no brainner. when one sits down and runs the number, it really then seems just absolutely mindless. i totally agree with you.
@ Nicole – it is all about balance indeed. that is the beauty of side gigging in my opinion. you can twist and bend it in any which way to fit your specific lifestyle and the balance you seek. that said, it is not for everyone. many are perfectly happy and doing just fine with or without it.
@ Kat – i understand the intent of your comment. there are always exceptions to generalizations, and not all generalizations are accurate either. my comment, though general, was made to state the obvious and amplify the main message of the post. agreed that we don’t know the exact future, but we can proactively prepare for it based on recent treds. inflation in inevitable if you consider factual numbers. some salaries are indeed outpacing inflation, especially right now because we are in a deflationary state, however this is the exception to the norm. moreover, the trend is likely to reverse back up given historical to date outcomes.
if you measure average US household income to numbers such as price indexes (cost of living), you will see that the ratio has grown unfavorably over the years. dual income households are necessary in many cases today. true, a lot of that has to do with our standard of living / demands, but a lot also has to do with the basic cost of living.
@ Krant – why do you think that is? is it lack of resources? knowledge? do education systems need to delve into this area and prepare students better for what’s to come? how do we raise awareness around this?
@ Jenna – agreed, there are a million and one things out of college. it is often the social piece of the equation one sacrifices to get a bit ahead, for example to pay off that student loan early. i know i certainly compromised some of the social aspect of the equation. as a result, i am enjoying exponentially more of it today, and knock on wood, hope to continue doing so hereon out. all that said, the right balance is the key, and that balance differs for all of us. i wish you all the best, and i hope you find that balance soon as well as you begin to progress further with your plans
Options are always great. Life changes daily, and so may your goals and money needs.
I have no idea what the future holds, so I try not to have a target date for retirement because I may be disappointed. We just save as much as we can, and take it one day at a time. I don’t know that I can say 10 percent is the ideal percentage to save, it all depends on your income level and what you desire for retirement.
This past year has taught me that anything can happen, so it is best to be prepared.
I like the idea of dedicating a certain amount of your time to doing a project that will benefit you — whether that’s earning extra income or some other project.
To answer your question though, currently I spend about 30-40 hours a week on my side projects.
Jackie – Wow. How do you manage to extract that time from your routine? What gives?
Everyday Tips – You are right, the key is options. When you have options, you can slice and dice based on your specific needs.
I’m like Nicole, I’ve lead a workaholic lifestyle for too long and time is more important to me right now than the extra money. It’s especially true when you are salaried. You could work your butt off for no extra money (but it does pay eventually with promotions and such).
Although I like the theme of the article, I think it’s dangerous to be a workaholic shooting for early retirement. What happens when you finally stop working and you have nothing to fill the vast hours in the day you used to spend working? I’m sure it’s a tough transition. My friend has a fishing charter and is always telling me how rich guys have no idea how to have fun because they spend every waking moment working. They often have the toughest times adjusting.
So my goal is indeed to invest time into my retirement but not to make more money but to develop the networks and skills I want to expand upon once I hit that point. So I think about what I’d do if I were retired and try to fit a little bit of it in my days now.
FGA – also a great point, and more of a reason to find that balance. ill give you my example, i was still able to do the things i enjoy doing, but had cut down on it initially knowing that it would pay off in the long term.
it’s like compounding to me, the more i invest in it now and the longer i let it ride, the more benefits i will derive from it later. because its something you do on the side, there is no rush to complete it. you decide what and how much you do. that said, the more you do the faster you can expedite the success you are looking for, but then again there is a trade off which you talked about.
balance is really the key at the end of the day, and that balance equation varies greatly for each one of us.
This was a nice post with lots of good things to think about in it.
If I was Jason, and I made $80,000/yr.? I’d sock away at least 15%-20% -or more- (depending on his bills owed). Then, Jason could pretty much do as he pleases after 45 yrs. of age. Maybe even earlier is he’s a whiz in the financial markets, or some other means.
Retire? Or keep working. (why would he keep working?) because he likes what he does and still has the capacity to do it, but is not “tied) to it whatsoever).
For some, what they do for work, really isn’t working. And pays them well. (ex: Imagine drawing “pictures” all day and it gave you … $80K. I happen to know someone who does just that)
For some? It could be the difference between just working, and working towards a goal.
Sunil said, “The point is that he has options, and options are good to have in life. He can retire early, or improve his retirement years, or simply indulge more – the choice is his. But this choice would not be possible if he does not set aside 10% of his time to invest into his future.”
So true. And Jason HAD TO WORK to get there. Thank God for options in life and the abilities to make decisions that impact our life (versus some who aren’t so motivated or lucky). It’s nice to think about retiring, but one HAS to have a bigger plan than the rest of the norm.
I remember in High Skool
, while others played, there were others doing their homework, thinking ahead with purpose, or working hard at a job (or 2). I was always out playing. Somewhere along the line, I realized and found a mentor(s) (Fact: NOT Guru! LOL) who laid it on the line. Yep, I had options. But I had to work, and work hard, in order for them to actually come true. There is gold at the end of the road but no one is going to give it to you (unless your last name is similar to Rockefeller).
We reap what we sow. Otherwise, we’re just staring @ our dirt.
Thumbs Up, Sunil!
P.S. – Something I’ve always wondered … if the Walton family (WalMart) is so full of Billionaires … why do they keep working? They obviously could stop working anytime they wanted. Sell Out!! Enjoy the good life!! Hmmm. (wink)
ODWO – passion burns…and the fire it starts is hard to put out (in a good way). thumbs up my friend and happy new year
I’m definitely all about options. Like the common phrase “never put all your eggs in one basket”, that holds true for everything. Keep your options open!
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