The old adage “time is money” has never been truer for millions of Americans. We live in a highly monetized society. We equate time with money in ways our grandparents would not have recognized. Everything we do is organized into microtasks and micropayments because we want to spend as little time as possible on any one activity and we want to pay as little as possible.
This environment comes from having the opportunity to do so many things we’re constantly looking for ways to squeeze more things into our lives. But the more things you do or buy the more money you spend. Whereas dear old granddad might have thought that paying for 5 hours’ labor on a 3 hour job was a bad idea, you might feel like buying 3 things when you can get 5 is a bad idea.
Put another way, some personal budgeting specialists advise their clients to think in terms of “how many hours do I have to work to pay for [X]?” In fact, I have read some very interesting budgeting plans that equate everything with hours worked. In my opinion, that overcomplicates matters. Although most of us have some say in how much we earn per hour, it’s not like hourly income value can be adjusted up or down on the fly. It takes time to increase your income. It’s easier to waste time with frivolous matters, thus reducing your income.
The relationship between time and money is intuitive. Some people would say there is a strong correlation between time and money, although I feel that is misleading. We don’t want to be distracted by abstractions because the time-and-money relationship is already an abstraction. Let me establish a few definitions and then we’ll look at how Tiny Budgeting helps you manage both your time and money.
Concepts Relating Time to Money
You have an income. Maybe you work a regular job. Maybe you do contract work. Maybe you have a trust fund that pays you a stipend. Whatever the source, you have an income. In pure accounting terms we usually divide our income into monthly segments. You make X dollars per month.
You have active income and passive income. Active income includes every dollar you are paid in exchange for selling something, either your time and service or something you own. Passive income includes every dollar that is paid to you in interest, or that accrues as a result of increases in value in things you sell. If you purchase an oil painting for $100 and sell it for $500, you make a $400 profit. If any of that $400 was due to the fact that you held the painting for 5 years then that would be passive income. The rest would be active income.
Another form of passive income is any revenue you earn from a business venture where you are not actively involved. Maybe you are an investor. Perhaps you run a Website that carries advertising and you’re paid commissions. If the work is performed by others and you are paid an override, that is passive income.
When we relate time to money, we almost always mean “active income earned per period of time”. Your time is valuable only because you use that time to generate money. If you don’t need to do anything to earn an income then your time is not directly associated with your income.
Conversely, the time you spend doing things may cost you money, either lost income opportunity or because you are paying for the use of someone else’s property or services by time. If there is a cost per time associated with any of your activities, including making money, then you must deduct that cost per time from your income per time.
That leaves you with profit per time. The “per time” can be denoted in per hour, per day, per week, per month, or per year denominations. It’s up to you to decide how you want to manage the numbers.
Tiny Budgeting doesn’t really care about Income per Time but it does care about Cost per Time. The cool thing about Tiny Budgeting, though, is that it is a very flexible system that adapts itself to whatever your circumstances are. If you have to manage your budget on the basis of Revenue per Time then Tiny Budgeting accommodates that requirement.
What Is Tiny Budgeting?
In the simplest of terms, Tiny Budgeting is the practice of dividing your expenses into “must pay for” and “choose to pay for” categories. These are Necessary or Vital Expenses and Optional Expenses. The standard practice in Tiny Budgeting is to assign four types of expenses to the Vital category:
- Housing (primary residence only, rent or mortgage)
- Transportation (only what you need, not for recreation)
- Food (only what your family eats, not charitable donations)
- Utilities (power, water, sewage, trash collection, etc.)
Every other type of expense falls into the Optional category. They are Optional because you don’t need those expenses to live. You may have rational reasons for obtaining credit cards (such as a need to build your credit so you get a home mortgage). Placing an expense in an Optional category does not mean it is frivolous, even though some people say these are unnecessary expenses. In real life you have Permanent (Vital) Expenses and Temporary (Optional) Expenses.
Tiny Budgeting prioritizes your income according to type of expense. So, for example, you will always allocate enough money to pay a Vital expense but if you come up short on income you can be flexible about which of your Optional expenses are paid on time. With Tiny Budgeting your goal is to pay off as many Optional expenses as you can, as soon as you can. But this system works great for people who don’t have large incomes.
Of course, it falls to you not to incur expenses you cannot pay for. You may have an emergency expense, such as an unexpected car repair. Tiny Budgeting teaches you how to accommodate expenses not under your control.
Finally, Tiny Budgeting also teaches you how to save money. Because Tiny Budgeting treats your income and expenses in a business-like way, it follows a standard business practice of increasing assets and owner’s equity. Assets are everything you own. You may borrow money to acquire some assets. That borrowed money becomes a liability. After you deduct your liabilities (what you owe) from the value of your assets (what you own) the remainder is your Owner’s Equity.
The goal of Tiny Budgeting is to increase your assets and decrease your liabilities regardless of how much money you make.
Why Is It Called Tiny Budgeting?
The “tiny” part is due to the simplifications you employ. Budgets look smaller when we group things together. You have three parts to a Tiny Budget plan:
- Vital Expenses
- Optional Expenses
- Savings
This does not look exactly like the traditional accounting formula of Assets – Liabilities = Owner’s Equity. This breakdown actually comes from specialized accounting reports. Tiny Budgeting simplifies the book keeping so that you don’t need to learn a lot of terminology. It’s “tiny” budgeting because it’s a quick, easy to learn method of managing your money.
How Tiny Budgeting Helps You Save Money
Let’s talk about the saving of money first. I’ll relate that to saving time before we move on.
In the Tiny Budgeting method you pay yourself first. In other words, whenever you are paid (passive or active income), you immediately set part of that money back. You don’t spend any money until you have made a virtually untouchable deposit into savings. A deposit is touchable if you are sure you’ll need to spend some of that money within 30 days. The goal of Tiny Budgeting is to only make untouchable deposits into savings. That may mean depositing only $10 per pay period than $25. You save what you can, not what you hope to.
Although it helps to have a savings account with Tiny Budgeting, that is not really necessary. As I mentioned above, Tiny Budgeting is highly flexible. As long as you decide on a way to put money aside so you don’t spend it, you’ll be okay.
Tiny Budgeting is not counting on interest or market valuations to grow your wealth. Tiny Budgeting counts on your deposits to grow your wealth.
And this is where Tiny Budgeting relates to how you manage time. You cannot take your personal time to a bank or a stock exchange and invest it. You only get so much time and that is it. You cannot grow your time. So using a Tiny Budgeting method for managing your time means that you “bank time” out of your monthly calendar before you allocate time to anything else.
In other words, when you sit down to decide what your next month looks like, decide how much time you need for yourself. You could draw up a calendar that uses a 24/7 breakdown (8 hours for sleeping, 2 hours for eating, etc.) or you could just draw up a calendar that uses a daily breakdown. It doesn’t matter. In fact, you can do it both ways at the same time. You know you’ll work about 5 days per week so you’ll just decide what to do with the hours on your two day “weekend” (which could be days other than Saturday and Sunday, depending on your work).
Using a Tiny Budgeting method, you can organize your monthly calendar so that your days off fall close together. You can also integrate holidays and vacation time into the calendar. Most people already do this naturally. We’ll come back to this below.
How Tiny Budgeting Helps You Manage Expenses
Although you must always pay your Vital Expenses on time, the objective behind Tiny Budgeting is to avoid paying fees and unnecessary interest. Fees cover everything that goes wrong: overdrafts, insufficient funds, late payments, “convenience” fees, rollover fees, etc. If a company you do business with wants to increase its profits from your relationship, it will find a way to charge you fees (and interest) if it can.
Tiny Budgeting is the knight in shining armor that kills those dragon fees that eat you alive.
After you have paid yourself (savings) and your Vital expenses, you must take whatever money is left over and decide how you’ll pay your remaining expenses. I should note that while you don’t pay for all of your food in advance, you should do your grocery shopping as seldom as possible (buying in bulk if you can) and set aside an allowance for eating out.
Your Optional expenses may cost less than the money you have left over. If that is the case then pay everyone on time and deposit the rest of your money into your savings.
For people with fixed or limited incomes, those Optional Expenses get out of control very quickly. When you have to choose which expenses to prioritize, you have three strategies:
- Pay the highest interest rate accounts first
- Pay the highest balance accounts first
- Pay the most expensive accounts first
Tiny Budgeting prefers the third method. An account’s expense consists of the interest and fees it charges you. You may be paying less interest on a small balance but because you were late you’re accumulating late and rollover fees. You have to take those fees into consideration.
Also, if a creditor automatically debits your bank account when you have no money in there, you have to associate whatever fees the bank assesses with that creditor’s account. In other words, if you pay a $35 late charge and a $30 overdraft fee (assuming your bank pays the debit for you) plus $2 interest on an account, that account cost you a total of $72 that month.
If your highest interest rate account only charged you $40 interest for the month it was not your most expensive bill, the $72 interest + fees account was.
If your highest balance account only charged you $60 interest for the month it was not your most expensive bill, the $27 interest + fees account was.
Budgeting systems that prioritize bills by highest balance or highest interest rate cost you money. You should be prioritizing by the secondary costs of the bills. You have a principal cost, which may be money you borrowed or the basic cost of service, and you have a secondary cost, which consists of the interest + fees.
You need to avoid secondary costs on your Vital expenses. You want to reduce the secondary costs on your Optional expenses as much as possible.
How Time Expenses Affect Our Lives
When you are managing your time, you incur time expenses in several ways. One common time expense is the extra time you spend driving to a destination when you are caught in unexpectedly heavy traffic. Another common time expenses is the extra time you spend when something breaks and you have to repair it right then and there. A flat tire incurs a time expense. If you plan to start cooking dinner at 5 PM and realize at 4:50 that the oven must first be cleaned, that is a time expense (unless you change dinner plans).
However you allocate your time throughout the month, time expenses eat away at your time budget. And unlike financial budgeting you cannot catch up on your time expenses. Time spent is gone forever and it can never be replaced.
To reduce our time expenses we must:
- Always have a plan
- Always check to see if unexpected delays have developed
- Always have a backup plan
- Prepare for emergencies
A backup plan is not the same as preparing for emergencies. If you intend to hold a party outdoors on your patio and it rains, your backup plan is to move the party indoors to the dining room. If the power to your home suddenly goes out you have to use emergency lighting so that you can see in the dark.
In the most general terms, backup plans usually depend on changing a venue or taking a different route. Emergency preparedness usually consists of stocking up on certain kinds of supplies (including money) so that you have them if you are suddenly without your normal resources.
An extreme example of emergency preparedness is to buy a second car in case the one you normally drive breaks down. An example of a backup plan is to drive your spouse’s car to work if yours must be put into the shop for regular maintenance.
Planning ahead saves us time. Anticipating regular uncertainties and including backup or alternative options in our normal plans also saves us time. Being ready to abandon plans and fall back on stockpiled supplies in an emergency saves us time, too.
You cannot “earn more time” but you can “spend less time” doing whatever you need to do by being efficient and practical. Wasting time is the privilege of the wealthy. Most of us are not wealthy.
How Do You Bank Time?
Since you cannot literally put time into savings account and pull it out later, how can we say it’s possible to “bank” time? I admit this is a metaphor, but I believe it’s an appropriate way to describe what I do.
Let’s say you know you have to clean out your garage by the end of the month. You give yourself four weeks to find a way to spend an entire day working on the garage. Hopefully it won’t take that long but it’s the practical way to budget your time. And yet, we do a lot of tasks on the weekends that we cannot do during the week. Wouldn’t be great if we could put a day of our free time into a bank and withdraw it when we need to get a special project done?
The way I manage time for special projects I know are in my near future is that I look for ways to take care of all that tasks I need to complete on that day, in advance. It could be as simple as turning to the Internet to buy some things online that I would normally go shopping for. It could also be as simple as going without an hour’s sleep for a couple of weeks while I take care of small tasks. That frees up time gradually for me to complete larger tasks that roll over from weekend to weekend.
And since time is money I may also save up enough money to pay someone to do some things I would normally do myself. For example, suppose you intend to throw most of that stuff in your garage away. It’s not even worth having a garage sale. If you get an estimate from one of the companies that hauls away junk 2-3 weeks in advance you have time to save enough cash to be able to pay them. So this way you’re converting your time to money and saving money.
If you cannot free up enough time from your own schedule to get everything done that you need to do, then free up some money so that you can pay someone else to take some of those tasks off your shoulders.
In Conclusion
Time is too valuable a resource for most of us to waste. Anything you can do to save time, like adopting a fast, efficient budgeting method, is a great idea. And if you can trade your time for money or your money for time, do that as long as you feel you are getting at least equal value or more value in return.
Time is the most limited resource you’ll ever have in your lifespan. Until our medical science reaches a point where it can extend our lifespans and our ability to live full, productive lives we have to manage our time very carefully. And managing time well includes managing money well.
Learning rules for time management from budget management makes sense, especially when you use a simplified system like Tiny Budgeting.
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