ROI for Life

How often do you examine the return on your investment of time and money? A dear friend once spent 3 hours in the waiting room of an auto shop to save $15 on an oil change. When I asked, she refused to sit quietly in the corner for an hour in exchange for $5. That’s an inefficient exchange of time for money.

Last week, a close relative spent $2000 repairing a car that’s worth about $500…after buying the replacement car. That’s a poor exchange of money for value.

Why do people make decisions like that? They seldom take a look at the values being traded. My friend knew she would have to work to replace the money she wouldn’t have saved, but didn’t think about the time she could never get back. My relative was emotionally fixated on the sunk costs of the repairs she had already put into the older car and couldn’t bear the thought of losing that “investment”. Neither was an example of rational decision-making, but rather a case of allowing emotions to rule.

In both cases, the flawed logic could have been avoided by dispassionately doing the math. Spending 3 hours of your time must save you more than the money you could make in 3 hours, or you have wasted the time. If you can only sell your car for a certain amount of money, spending more than that on repairs is a waste. *

The trick to the objective examination is to ask yourself how you would advise someone else, if you had absolutely no skin in the game. That’s your best bet to making emotionless, rational decisions.

How do you make sure you aren’t wasting your investment of time and money?

* Naturally, if you are spending your time and money on something you love or value deeply, it’s not a waste.

Update:  This post has been included in the Festival of Frugality.

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    1. Being married helps…it’s like you have a built in reality check.

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