For everything in life, we need a frame, and that’s necessary too if you want to understand money. The problem with frames is that it can be faulty or sub-optimal unless you constantly test them and update them.
When I was growing up, I had a very basic frame to understand money. As I grew older, that frame didn’t get updated much until I starting earning an income. That came in the form of part-time jobs when I was a teenager.
Updating Your Frame To Understand Money Better
I had a 2-month internship at Microsoft once when I was around 19 years old. It paid me around SGD350 a month (or about USD250). I knew it was a very low-paying job, but I was a student, and it was the going rate. It didn’t become clear just how low-paying it was though until I went out for a nice dinner with my friends.
The mains at the restaurant cost about SGD35. It struck me that it would cost me quite a fair bit of my salary. My daily salary was about SGD16 (SGD350 divided by 22 working days in a month). Each hour that I worked got me about SGD2 (SGD16 divided by 8 working hours in a day). What this means is that I had to work about 2.5 days or 16 hours, before I could actually afford that meal. I was shocked and appalled.
The work that I did as an intern wasn’t anything to shout about too. It was often that I felt the seconds creep by at work. I rearranged chairs for conferences, compiled presentation decks, or did research for senior employees. To go through 16 hours of that kind of work was significant, and I felt that it was a huge price to pay for a meal.
As I progressed with my career, my income and salary increased. It made it more affordable for me to afford that same SGD35 dinner. As my income grew, a SGD35 dinner that used to take 16 hours of work to afford, now took a much shorter time instead. Some of you might even be able to afford a SGD35 dinner with a few hours or minutes of work.
With my growing salary, the memory of my days of being an intern soon faded, and along with it, the lesson that I learnt.
Understand Money: Time is Money, Money is Time
I started buying a lot more things. Some things didn’t even feel like a splurge. Maybe I felt like I needed a new pair of pants. Maybe that new pair of pants needed a different color shirt to match. Perhaps I would enjoy having new speakers, or a new LED monitor so that I could be more productive. Much more expensive dinners also seemed a lot more affordable and easier to pay for. A new car seemed to make sense, because it felt like a great reward for myself.
What I forgot was that it doesn’t change the fact that whenever you work, you are basically exchanging your time for money. Only recently did I remember this lesson again when I realised I had spent over $800,000 on items that did not move the needle in my life. I became conscious of the fact that anything that I buy is still taking some form of my time away from me.
It was something that I had thought about when I was younger, but it took many years before the lesson was learnt. Better late than never though, and I’m glad my perception of money changed for the rest of my life.
There’s a popular saying of “time is money”. When I was growing up, I used to think that this means that you have to work hard, and not waste time. The logic was that with every minute that you waste, you could have used it making more money instead. Now I realised that if “time is money” is true, then the converse of “money is time” can and is also true. It helped me understand money so much better when I realised that money wasn’t really just money, but time.
Focusing on What’s Important When You Understand Money
The awareness of money’s nature shocked me into making great changes. I started simplifying my possessions and my lifestyle and I became a minimalist. I realised that some of the desires and expectations that I had were irrelevant, unhealthy, and downright ridiculous. I started embracing minimalism. I sold my car, my apartment, and a bunch of stuff around the house that I never used in years.
Because I had less stuff, I could start renting a smaller apartment. Though it was small, its location was very much more convenient. The convenience meant that I no longer needed a car, and I could take the train to my office. I also had a gym, eateries, and supermarkets just minutes away by foot.
My savings every month went into various investments. I had the goal of increasing my passive income. I wanted to reduce the need for me to work and trade time for money, and more passive income allowed for that.
Simplifying my lifestyle and increasing my passive income were game-changers. It enabled me to have more free time to focus on things that were important to me and/or made me happy. This isn’t new info though. Research published in the Journal of Social Psychological and Personality Science found that people who valued having more time were happier with their lives.
I used to feel that money was controlling and managing me. With these changes, it made me feel that I was controlling and managing money instead.
What about you? What is the value of money to you, and how do you manage and control it to give you happiness?