13 >   Come Out Ahead Trading Your Time

In my early 20s I was employed. I traded 40 hours of my time each week for a modest wage. I earned enough at that job to support my family and pay my bills, and I’m grateful for that. Though I didn’t know it, I was trading my time for much less than it was worth. I wasn’t putting my available time resource on my best available return—not even close. And I wasn’t delegating at all. My employer was delegating to me.

Then I started freelancing as a software developer. The clients who hired me to write software paid well. I was still trading my time for money, at a much higher hourly wage. Even at that higher return, I still wasn’t putting my available time resource on my best available return.

Then I pivoted from selling my time as a freelancer, to spending my time building salable software products. For the first time I was investing my time in something that could earn a return far larger than any hourly wage. No longer was I the product. I was selling a product that was separate from me. This freed me of a time limitation, and set me up to begin delegating.

I hired a smart and reliable technician to perform software installs. He was not a software developer, so his hourly wage was far lower than what I could earn freelancing. For the first time, I was a buyer of time. I was trading my time for a high value, and buying time at a much lower price. I was coming out ahead on my time trades. I was beginning to break through the limitations of my own time.

This arrangement was not necessarily at the expense of my employee. If trading his time for that paycheck was his best available return on time, we could both come out ahead. As a high-potential person, he learned a lot on and off the job, and after a few years he became a full-time entrepreneur running his own business. Working for me wasn’t his best available return on time for long. Like me, he moved up in the time-trading process.

When we started ATS Acoustics, I became a buyer of time on a bigger scale. We hired manufacturing workers and office workers. Soon the total time going into the business was 10, then 20 times what I could put in on my own. I was breaking free of my time limitations in a bigger way. And at the same time those workers were trading their time for a better return than they were earning before they came to work for ATS.

A couple of years later we started ATS Rentals, and the trend continued. I was a buyer of more than 40,000 hours of worker time every year. I was also deploying capital, earning a return on that, too. I spent most of my time leading, building businesses I owned, and investing in my own growth and development. I was earning very high returns on my time. I was coming out much further ahead on my time trades than I had been a few years before.

Then I ran into a problem: Though I had delegated a great deal, and I was earning a high financial return on my time, I had built businesses that weren’t equipped to run without my daily presence. Areas like marketing strategy, difficult HR issues, and IT engineering still depended on me. I got stuck inside my own business creations.

If my vision for my life was simply to get rich, I could have stayed and continued investing my time building those profitable organizations. But there was more I wanted. I wanted to continue creating new things, I wanted more face time with people, and I wanted to pay forward the gifts of leadership development and successful entrepreneurship.

I hadn’t prepared those organizations to run without me. Honestly, I didn’t have the gut-level optimism to believe they would grow into something much bigger. I don’t feel confident those businesses would succeed long enough to need a second generation of leadership. I was focused on overcoming the challenges of that month or year. My vision and my confidence were too small. As a result, I fell behind the curve on preparing for a new level of time trading and delegation.

So I worked a day job as the leader of my businesses for a few years. During this time my managers continued to grow and develop. In early 2014, I took the leap, stepping away from daily management of those businesses. I put the responsibility in the hands of my managers, increasing their roles as leaders. I didn’t know what would happen. I’d never delegated at that level before. I was prepared to make less money if that was the price of having free use of my time.

A year later, overall business results are better than ever. The leaders who replaced me have done an excellent job. I’m receiving more financial return with much less time investment than before. My managers and I are all coming out ahead on this change. The only losers are our business competitors, and I’m okay with that. I should have prepared to step away sooner, because running those businesses was not the best time trade I had available to me.

Now I have freedom to trade my time in pursuit of the life legacy I want to leave. I still spend some time doing things to earn money. I look for opportunities that give me the best available return for my time. And I look for opportunities that return things money can’t buy, like impact on people and positive change in our world.

This story of my time trades (so far) ends very differently than it begins. Effective trades at the beginning led to increased returns, and options for even better time trades. It’s a progression that I hope to continue, and I hope you will experience a similar progression.

Invest in Skills to Increase Returns on Your Time Trades

If you don’t already have significant capital to invest, what you do with your time in the next decade will have a lot more impact on your future than what you do with your financial investments in the next decade.

You can’t make an investment that will increase your lifespan, but you can make investments that increase the value of all your future time. Investing time (and maybe money) in developing skills is an important way to do this.

The return on skill development is greater when done earlier in life. You can put your new skills to use from the date you acquire them to the date you die. The longer that span is, the greater the payoff will be. We’ve got it right front-loading education at the beginning of our lives. So don’t wait. Today is better than tomorrow when it comes to investing in your skills.

Formal education is one way to develop your skills, but it’s hardly the only way, and not the highest-ROI way for many circumstances. Some professions such as medical and legal fields require specific education in order to qualify for a license to practice. If what you want to do requires convincing someone who values credentials to pick you, earning those credentials may be worthwhile. However, if what you want to do depends more on innovation, initiative, leadership, legwork, or the merits of the work itself, you may be better off proceeding to do it than spending years learning about it in a classroom.

I’ve observed people who want to start something or do some impactful work turn to education instead of starting. The fear of failure or not being good enough, or the simple fear of committing to go forward, finds a nice relief in the expensive, time-consuming, and sometimes unnecessary path of getting education first. As a two-time college dropout, I’ll admit I’m biased on this one. You decide what is likely to be most effective for what you want to do.

Though I have my reservations about formal education, I am an unrestrained fan of learning. Learning in some fields is much more fun, effective, and efficient outside of the classroom. The Internet offers free access to more learning resources than you could ever consume. Because the marginal cost of sharing information on the Internet is approximately zero, the economics of free learning work. If you are a self-motivated independent learner, you can get the information and demonstrations you need for new skill development from sites like You-Tube, Khan Academy, and Wikipedia—all for free.

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Combined with the right information, hands-on learning can be quite efficient and effective for many types of skills. Trial and error, test runs, and small-scale experiments are fantastic learning tools. Learning by doing also has the advantage of generating productive output and/or earning a wage while learning, in many cases.

I once spent some time between conference sessions with indie musician Hannah Elizabeth Smith. The night before, she had thrilled the crowd with her masterful main stage performance. While we chatted she was messing around on her guitar with skills so impressive and seemingly easy for her, I just had to shake my head and laugh.

In his book Outliers, Malcolm Gladwell describes the concept of 10,000 hours of practice to master anything, I asked 20-year-old Hannah if she thinks she has 10,000 hours of guitar practice in. After some quick mental math she said, “I think it’s a lot more than that.”

Calling her gifted would be an insult. She’s spent a big fraction of the waking hours in her life practicing guitar. That’s earned, not given.

Skill comes from practice. Skill is not handed out to a privileged few at birth. It’s developed through investment of time in practice. That means no matter who you are, you can develop skills that raise the value of your time. This is an important way to power the positive spiral of compound investing, even when you have little to no money to invest.

Investment advantages come from the will or ability to do things others find difficult or impossible. Possessing a high level of skill is one way to get that. You can develop that kind of skill and use it as an investment advantage to earn a higher return on your time.

Skill is Different From Understanding

In Chapter 10 I talked about the investment advantage of thorough understanding. Thorough understanding of how something works gives you an advantage in making investment decisions about it. Skill is different. A high level of skill at something gives you an advantage in spending your time actually doing that thing.

I am reminded of this difference every time I practice flying airplanes. I understand the physics pretty well. Lift, inertia, aerodynamics, and engine function all make sense to me. Based on that understanding I can make informed decisions about how an airplane should be flown. This analytical understanding is almost no help with actually flying an airplane myself. A person with understanding knows why the airplane yaws when a crosswind hits. A pilot with skill pushes the right amount of rudder correction at the right time to stabilize the airplane. I’m still practicing that skill.

Understanding what technology is required for a startup company to succeed is one thing. Possessing the skill to create that technology in a lab is another. The first enables investment decisions. The second enables trading time for a high return. Both are useful. When you don’t have much capital to make investment decisions, deciding to invest your time in increasing your skills might be a very good move.

Use Your Best Skills; Delegate the Rest

It’s intuitive, of course, that you’ll have an advantage working in a career that uses your best skills. If you are trained as a civil engineer, working as a retail cashier, for example, is probably not your best time investment opportunity. Others will be better than you are at cashiering, and you’ll be better than they are at engineering. You’ll likely seek a career that provides opportunity to put your best skills to use.

For most of my adult life my best skill was software development. When I started in my basement, long on time and short on cash, it was a no-brainer to invest my time in a business activity that used my software development skills. That’s where I had an advantage that allowed me to earn a higher return on my time.

As I went forward into other businesses, my software skills continued to provide an advantage. I functioned as my own IT department for each of my startups, saving precious capital at early stages. I got into businesses that used a lot of software for logistics and digital marketing, and earned a high return on the time I spent creating that software.

After spending 10 years as a CEO, business leadership is now one of my best skills. I continue to look for opportunities to earn a high return on my time by putting my business leadership skills to use.

In economic terms, the rule is “Always export your comparative advantage.” What you trade to others should be the thing you are best at producing, relative to everything else you could produce. Invest your time where you’ll get the best return, and delegate the rest to others.

This applies to more than profit-making. If you are working on a nonprofit cause, it still makes sense for you to spend your time and energy on the parts you are better at compared to others, and let them do the parts they are better at compared to you.

Say it takes you one hour longer to change the oil in your car yourself than to have someone else do it. Say you can get paid $40 per hour using some other specialized skill in a freelance role. $40 per hour is the opportunity cost of your time. And say your local shop can change the oil in your car for $20 in labor. You can “buy” that hour of time from the shop for only $20, and “sell” it for $40. You come out $20 ahead if you take your car to the oil change store, and $20 behind if you change that oil yourself.

Paying someone to do what you could do yourself may conflict with ingrained values of frugality and self-sufficiency. The thing is, it’s not truly frugal to spend $40 of time to save $20 of cash. Make sure you come out ahead on your time trades. Delegate everything you can delegate for less than the cost of your time.

If the current value of your time is $10 per hour instead of $40 per hour, this decision changes. Now you come out $10 ahead if you change the oil yourself, and $10 behind if you take it to the store. This illustrates the power of increasing the value of your time. As you increase the value you can trade your time for, you open up more and more opportunity to delegate and come out ahead. This maximizes the use of your most precious resource, your time.

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A consultant who gets paid $1,000 an hour can and should delegate just about everything, and focus her time on the consulting itself, the part that nobody but she can do. She should have an assistant answering the phone, checking the mail, booking her travel, scheduling her meetings, processing the client contracts, and so on. Economically speaking, she should not be mowing her own lawn, spending more than a few minutes to search for the best deal on a new car, or even spending time driving herself places. Anything that costs (or saves) less than $1,000 per hour of her time should be delegated to someone else. She’d come out $980 behind if she changed her own oil. Frugal with money, in some sense, yes. Good investment, absolutely not.

Often this type of delegation decision requires comparing a non-monetary value to a monetary one. This goes back to knowing what you really want. For example, I could hire a nanny to raise my kids for less than the value of my time, but the non-monetary value of the relationship with my kids is worth more to me than the money I could generate with my time elsewhere. I don’t feel the same way about spending time with my car while changing the oil.

When Passion Doesn’t Pay Well

Some people find themselves in a situation where their best marketable skill doesn’t align with their passion and what’s really important to them. For example, a successful lawyer with high earning potential may find he has no passion for the practice of law. A simple economic perspective says he should use his best skill and delegate the rest. That means to spend a lot of time practicing law, and pay others to do most other things. This is the right prescription if the future he wants is maximum wealth regardless of quality of life.

Back in Chapter 1 we talked about the importance of reflecting before you race. Your “best return” is the return that contributes the most to the long-term future you desire. If our lawyer is passionate about justice for victims of human trafficking and wants to leave a legacy of positive impact in that area, he might choose to leave his high-paying corporate law job and go work for a legal justice nonprofit in Africa. The return in terms of dollars would be lower. The return in terms of bringing about the future he wants might be much higher.

It’s a wonderful thing when passion, purpose, and lucrative financial returns all line up around one activity. It’s much easier to stay inspired when your activities are in line with your future vision. I feel beyond grateful that entrepreneurship has been that way for me. Sometimes that combination is available all in one package. Sometimes it’s not. When your passion and your best economic return lead in different directions, you’ll have to answer tough questions about what kind of future you really want.

How important is economic success to you? What are you willing to give up to get more of what you love? Is the work you’re doing to pay the bills helping you move toward what you love, or is it actually holding back?

If you are doing something you don’t really want to do because it pays well, either use that money for what you do truly value, or line up your life with the future you really want by changing what you’re doing with your time. If it’s hard, but it’s your best way to move toward the future you really want, do the hard thing. If it’s not moving you toward the future you really want, stop doing it. Line up your actions with your intended future.

Am I suggesting the passionate artist quit her job and go full time doing the street art she loves so much? Probably not, unless a life as a starving artist is the future she really wants. It’s quite possible that job she lacks passion for is a key part of making the future she really wants—a future that includes food, shelter, and a way to fund her art. Look realistically at the whole future picture. Don’t base your decisions on a fantasy that isn’t backed by a workable plan. I’d advise that artist to build a foundation for doing more of what she loves by looking for art-related employment, or building a fan base, for example, and to keep her day job until that foundation is in place.

On the other hand, sometimes making a big change to engage fully in your passion isn’t a fantasy-driven leap, it’s a brave and realistic path to the future you really want. A second-generation business owner “stuck” in the family business, for example, may have very realistic prospects in another field he is more passionate about, but find it difficult for a number of reasons to make the switch.

To make the pursuit of your passion work you’ll need to possess or develop the abilities and other resources that enable success in that area. You’ll also need to outline a realistic plan for doing what you love, paying bills, and maintaining the other parts of life that matter to you.

The choice to leave your status quo and engage in what you love should be based on realistic projections of the future, as best as you can see. Don’t leap based on a fantasy, and don’t stay put because of fear.

How to Delegate Well

It’s in your interest to delegate when others can do tasks at a lower cost than the value of the time it would take you to do those tasks. At the same time, there are hazards in trusting others to do tasks that matter to you. Here are a few thoughts on delegating well.

Give responsibility to qualified people. Whether you trust a teenager to mow your lawn, a contractor to build your real estate, an employee to serve customers, or a corporation to manufacture your supplies, it matters whom you select. The more that’s at stake, the more due diligence you’ll need to invest to ensure the provider you select is competent to perform the way you want them to. Those who lack the required competencies cannot be trusted to deliver, no matter how good their intentions.

Give responsibility to motivated people. People respond to incentives, and people respond to their engrained character. Make sure both are pointing toward the behavior you want from the people and providers you select.

If you want your managers to increase profits, their pay should probably increase when your profits increase. If you want your assembly workers to care about quality, their pay should probably not be based solely on speed. Job security, praise, and opportunity to advance should flow to those who do the work and treat people the way you want them to.

If you want employees to treat customers with respect and enthusiasm, give that responsibility to people who’ve had those behaviors engrained in them since they were toddlers. Select people whose internal compass is aligned with the results you want.

Communicate clear expectations. Whether you are hiring a person or a company, they need to know what outcomes you expect, what you count as success, and what is not acceptable. It’s your job to be clear. Compared to a solo project, it takes extra time and extra communication skills to ensure this clarity. You can read your own mind. Nobody else can.

Let go, gradually. Delegation is a process of increasing responsibility and increasing autonomy over time. In most cases it’s not a good idea to pick someone, turn them loose, and walk away. Delegation of high-level responsibility is usually a multi-year process. As trust and skills are built, and you’ve instilled the values and behaviors you want, you can let go more and more. At the same time, don’t hang on too much or too long. Nobody likes to be micromanaged. Find an appropriate pace to transition responsibility.

As Time and Money Investments Pay Off, Reinvest the Extra Time and Money

As you increase the value of your time, and maximize your return by doing more of what you are best at, and less of what you aren’t, your returns will increase. You’ll have more time and money available.

“Reinvest your returns” applies here, too. Invest that extra time to create long-term value. Develop even more skills. Build your personal character. Deepen your network of relationships. Work overtime. Run a side business. Take on a freelance job. Build something.

Owning your own business can be an especially advantageous way to put your time to optimally productive use. The flexibility to get increased returns by investing increased time and the built-in opportunity to delegate to employees are both fantastic benefits to the owner.

Skill development and higher wage earnings are not sufficient to keep this positive spiral growing beyond the limits of your time. Increasing the value of your time helps increase your returns and generate excess resources, but it doesn’t scale beyond 24 hours in a day and about 100 years in a lifetime.

To break beyond that scale, you’ll need to invest part of the proceeds from your time trades in things that can grow without requiring proportionately more time input from you. As we’ve discussed before, building a business is one way to do that.

The same concepts can apply to not-for-profit endeavors. Building a movement that incorporates the time of many volunteers and/or employees enables the returns (measured in impact or positive change) to scale far beyond with the visionary founder could do alone.

Like owning stock, other financial investments also scale without requiring more time inputs. Making a decision about a $10 billion bond purchase doesn’t necessarily take more time than making a decision about a $1,000 bond purchase. Capital investments scale in the context of some very, very large markets.

Trade Your Time Well

If you desire a bigger future, don’t trade all your productive time for money and spend all that money in lifestyle consumption. This is like treading water. You get to stay alive, and that’s about it.

You can intentionally invest your time to increase the value of your time, like learning a new marketable skill. You can intentionally invest your time to build something of long-term value, like a product, a relationship, or a reputation. You can trade your time for the maximum wage available to you, and invest that money on your best available return. You can spend some of that money to delegate lower-paying tasks to others, and put your freed-up time to productive use. You can invest the proceeds of all these constructive activities in opportunities that scale beyond the limitations of your own time.

You can’t buy time and add it to your lifespan, but you can trade money to other people in exchange for their time. This can free up your time, and even more importantly, enable projects that require many times more person-hours of time than you alone could spend on those projects in a lifetime.

As your productivity and investment returns increase, trading your money for other people’s time becomes a much better deal than trading your time for other people’s money.

Paradoxically, unless you inherit wealth, the only way you can access this better deal starts by spending your time to get money. Here’s the sequence. Be productive with your time. Limit consumption. Invest the extra. Use the extra money that creates to free up your time. Reinvest your time at a higher level of productivity. Repeat.

Repeat that long enough, and your investments will be producing so much return that almost all of your time will be yours to do with as you please. You will no longer have to spend your time to get money, because you won’t need the money. You’ll invest your time in the future and the legacy you want.

Action Points

  Invest time and maybe money in developing skills that increase your returns on future time investments.

  Allocate your available time to where you will receive the best available return. Do a lot of what you’re best at.

  Define your best return in terms of the long-term future you really want.

  Delegate all kinds of tasks that others can do for less cost to you than the value of the time it would take you to do those tasks.

  Carefully select qualified and motivated people and providers to delegate to, and give responsibility at an appropriate pace, over time.

  As these steps increase the time and money you have available, reinvest those surpluses in even more skill development and even more delegation, to keep the positive spiral going.

  As your resources grow, invest in opportunities that can scale unconstrained by your time limitations.

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Take a quiz on how you currently trade your time and how you might trade it differently at www.aardsma.com/investingbook.