Friday, August 04, 2006

A little bit of time creates a lot of money

It occurred to me that after selling my 8.3345 shares, I guess I can take $15 of capital loss on my taxes. I thought to myself, dang, that's not much money. But then I thought about it again and realized that that means $15 less that I have to pay taxes on - so essentially a free $3 or $4. And I spend a lot more time than that doing PineCone surveys for $5.

This is part of the reason why people often dawdle about opening 401(k)s - most of the time, we just think about how we don't want to use that 20 minutes of our life on something that boring. But if you think about how much you'd reap from using that 20 minutes for something productive, the return on your time is pretty awesome.

This even works on doing things you shouldn't be doing - if you take the time to do it in a slightly less bad way, you benefit a lot. For example, lots of people cash out their 401(k)s to buy a house. But if you roll that 401(k) into an IRA, you can take out $10,000 of it without paying the 10 percent penalty. How much time does it actually take you to do all of that crap? Probably a couple of hours, if you tally up all the individual ten-minute sessions you spend on it. So it seems like a huge hassle because you have to keep spending these ten minute chunks on it. But if you consider that you're saving $1,000 for your four hours of time, each of those ten minute chunks is worth about forty bucks. If somebody came up to you and offered you forty bucks to sit in a corner and shuffle papers for ten minutes, you'd probably do it. Why does it seem less valuable when you have to do it for your own money?

I think part of it is the issue of scale. When you're looking at cashing tens of thousands of dollars out, a thousand dollars just doesn't look as big. But you'd definitely stop and pick up a five dollar bill on the sidewalk because that's a gain of five bucks for free, whereas saving $1000 is just a potential not-loss. You figure you're already losing so much money, what does another thousand matter? Same deal with mortgages and car loans and anything else big - a few dollars just doesn't seem to matter enough to take the time to work things out, considering how much money you're dealing with in whole. Most people wouldn't bother to haggle with the car salesman over reducing the price of the car fifty dollars, but they'd probably get in a shouting match if that salesman worked at a coffee shop and wouldn't give them the rest of the change from their five. You're still losing money, but in one situation you're much more likely to fight for what you believe you deserve than in the other.

I am way guilty of this syndrome when it comes to my big credit card. I have about $6800 on it, at a nice 3.9% courtesy of some checks from Chase, but I guess I could move it to a 0% card. It accrues about $22 in interest each month, so I'd save about $300 over the life of the payoff (according to Bankrate) if I switched. Oh, but it's such a hassle, I complain to myself! I'd have to actually apply for the card (Ten minutes.) I'd have to link my new bank account to the new card. (I'm going to have to do that anyway since I switched banks. Five minutes.) I'd have to find a new card when the time was up. (Another fifteen minutes.) Oh, I'm so lazy. That's like an hour to save over $300. Very lazy. I'll write tomorrow about what I'm actually going to do (and it's even lazier, but at least it works.)

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