Is Time Really Money? The Real Cost of Excessive Spending

fundMyLife explores the opportunity cost of money

Written by Kartik Goyal, edited by Jackie Tan.  

Opportunity cost! Most of us know it, almost everyone has heard about it – that feeling of wasting money never sinks in completely. It all seems like a wild claim that an excessive spending of just $10 a month is really a $74,000 loss for your retirement fund. In this article, we find a new way to put things into perspective.

Let’s do some (simple) math!

An average person’s lifespan is 82 years in Singapore. On top of that, assume that an average person spends 22 years acquiring his/her education. Additionally, another simple assumption is that a person spends 8 hours a day sleeping, another 8 hours to themselves that do not account for working hours – meals, chores, entertainment, and other activities – and retire by the age of 65. 

After taking everything into account, we are left with just roughly 15 years’ worth of working hours in our entire lives. To put that number in perspective, it’s 5,475 days or 131,400 hours.

At this point, you are probably thinking that that’s a lot of time. Well, the answer is both yes and no. Ideally, the financial aim of an adult is to live at a similar lifestyle after retirement, if not more luxurious which unequivocally depends on your current lifestyle and the one you will adopt in the coming years. This also means you’ll require 17 years’ worth of cash and investments by the time you are 65 to live to the ripe old age of 82.

Let’s maths even more

Deriving from Singapore’s GDP per capita, 3% increment of salary per annum, and a significant promotion and salary bump every 5 years, we estimate that a person will make an average of $51 per hour throughout their career. That’s around $8 million in total (absolute value, not adjusted for inflation or interest). Reading the last sentence would have made you proud of yourself already. You are already tempted into a little celebratory splurge on yourself, with perhaps an ice-cream?

Say a tub of ice-cream tub costs $5 – that’s around 10 minutes of your working life. Now, if you estimate that you buy one such ice-cream every month throughout the course of your working life, the total would be $3,060. If you were to put all that money and its subsequent returns in savings each month, you would accumulate around $19,000 by the time you retire. To put that number in perspective, it’s almost 610 hours of your working life or around 25 days in ice-creams.

To put simply, a single $5 deposit will turn into $53 over 40 years; that’s 62 minutes worth of earnings (assuming 6% interest rate and biannual compound interval). It might not seem like a lot but, if you think about it, spending $5 might cost you 10 minutes but saving $5 dollars will salvage more than 60 minutes of your work time, by the time you retire.

mindblown

There’s more! A $30 dinner with friends each month eats roughly 3,600 hours or 153 days of your time. If you drink alcohol, especially in restaurants and spend $50 a month, you’re pouring away almost 6,000 hours (not including the hangovers). Love those $500 pair of Louboutins? Average price, ladies! Don’t shoot the messenger. That’s walking away from 36 weeks in total, assuming you’ll need a new pair of them every year.  

A graph showing the opportunity cost of buying unnecessary things

To appreciate the impact of purchases, we plotted common activities against two things: average cost of activity, and the number of working hours eaten away throughout your life. For example, if you look at the “Restaurant” example from the previous paragraph, it costs $30/meal and 3600 hours of working life.

We understand that scrimmaging expenses is tough, saving as little as a $100 a month can shave off 1.5 years of extra arduous work towards your retirement fund. By all means spend on yourself to stay motivated, happy and content, however a stitch in time saves nine.

fundMyLife is a platform that aims to empower Singaporeans to make financial decisions confidently. We also connect consumers to the right financial planners in a private and anonymous manner, based on their financial planning questions.

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