Christmas arrives in three days. All over America, Christian children are going nuts, unable to believe that they have to wait so long, while their parents are going nuts, unable to believe that it arrives so soon.
Time is relative. Mathematically, it passes at a constant rate, but behaviorally, it does not. Along with children-waiting-for-Christmas time and parent-preparing-for-Christmas time, we have other concepts: maker time and manager time; clock time and event time; work time, play time, natural time, sacred time; and probably a million other things. It’s easy to say that we all have 168 hours a week, but we aren’t automatons. Some people get more out of that time than others – because they are better organized, are healthier, need less sleep, or don’t have young children bouncing off the walls waiting for Christmas morning. There are metaphysics of time, believe it or not..
One of the core concepts in finance is the time value of money. A dollar today is worth more than a dollar tomorrow if only because it can be spent today – we don’t even have to get into things like the collapse of the ruble or hyperinflation for the current dollar to have more value. That works fine mathematically, but not so great when you’re trying to explain what that actually means in everyday life.
Part of the problem is that we don’t really value the future. That’s in part because we don’t know what will happen tomorrow. I’ve been to three funerals in 2014. And even beyond that great existential consideration, there’s just the basic idea of wanting to have fun now. Surely I’m not the only person who has stayed up too late watching reruns of sitcoms despite having to wake up early the next morning.
So when someone is faced with the opportunity to buy new boots today or put money into a 401(k) plan to use in 40 years, the boots often win out. When a business is deciding between an investment that pays off in two years or one that pays off in three, the two-year option will usually be the winner – no matter what the present value.
I try to manage my days to balance the different demands on my time and energy, rather than the minutes on the clock, but I don’t always succeed. I try to balance investing for the future and living for today, but I don’t always succeed. I try to remember that I really don’t like Family Guy and that the alarm clock goes off at 5:30 am, but I don’t always succeed.
Because I am human. I can’t calculate time value without a calculator.
