Buying Time

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We have all heard the term before. "Buying time." We say it often—even though the more common term is "biding time." Although, they are used in different contexts. The fact is, we really can buy time. It is all in the art of the long-term investor and the mindset of something we call income replacement. Essentially, in many ways, when we think of our money in terms of time, it changes our perspective on many things money related. For example, let's say you walk into a store, and you want a new pair of shoes. You can either think of the cost in terms of what's on the sticker, or how much time you have to spend working in order to pay for them. Assume you make $15 an hour and the pair of shoes cost $50. The work time cost of the shoes is 3.3 hours. When you invest your money, you can think of your dividends earned in a similar way. If you earn $50 in dividends in a year, you replace 3.3 hours of work time. Ultimately, what the goal is, is to eventually replace all of your income. When a long-term investor looks at his annual dividend income from investments, he typically will think of it in terms of income replacement. In other words, an investor is earning $5,000 a year in dividends. Assuming the investor earns that $15 an hour at work, he has replaced roughly 333 hours of needed work time. Or, the equivalent of around 2 months of work pay. The person replacing their income with dividends is buying time. In this scenario, they have bought 2 month's worth of time assuming a 40-hour work week. Over time, and continuing this process, it is easy to see how one can eventually replace all of their income, essentially having bought back the time needed to earn from a job... This, freeing up all of your time to pursue whatever it is you want to.