Where To Start With Money: The Value - Time Matrix

Whenever we spend money, the idea is to get as much value as possible from our purchase. This will strike you as common sense.

The same concept applies to time. Our time - like our money - is limited, so it’s important to spend it on things that add the most value.

That of course means making time for the important things in life – meeting friends and family, sports, travel and good food. But it also means prioritising the right financial decisions, to avoid getting overwhelmed and to allow us to get on with our broader lives.

MAKE TIME SPENT ON FINANCIAL MATTERS EFFICIENT

There’s no fun in having millions of pounds in the bank if you do nothing with it. But if you’re going to make that money in the first place, you’ll have to spend some time on your finances. The key is making that time as efficient as possible.

The problem is that financial decisions seem complex, so it’s hard to see upfront which decisions generate the most value. Instead, we are hit in the face with decisions we have to make – for example a credit card bill which needs paying, or a house repair cost we’d postponed for too long. And we often procrastinate over the larger choices. To approach financial decisions in a better way, we need to get out of the jungle and look down from above the trees. That way we’re more proactive.

THE VALUE - TIME MATRIX

A useful way of categorising financial decisions (or any decisions for that matter) is to group tasks by the value they generate and the time they take. We can think of this in the matrix below:

As you can see, we’ve divided decisions into four quadrants: quick wins, major projects, distractions, and time wasters.

The ‘quick wins’ are a no-brainer. These are decisions which are relatively easy to make, and which generate substantial value. These should be at the top of your priority list, because the value to time ratio is so high. Examples could be updating your monthly budget or moving cash into a higher-interest savings account. The action for these tasks is ‘Do it now’.

The ‘major projects’ are more difficult. These are decisions you know will take time, like buying a house, or changing your spending habits. Because of the lengthy process, it’s psychologically tempting to postpone them forever, waiting for the perfect moment which never arrives. But that's a mistake. Before you know it, months and years roll by and they’re still not done, costing you along the way. It takes discipline to achieve these tasks, which is why the action for these tasks is ‘Small steps, regularly.’

The ‘distractions’ are more nuanced. These are areas where you might feel good about yourself, because you’ve made small savings while spending relatively little time. But they are a trap – you’d be better off spending time on ‘quick wins’, which generate more value, or on small steps towards your ‘major projects’. These ‘distractions’ are only worth doing after you’ve ticked off quadrants 1) and 2)

Finally, the ‘time-wasters’ are, as the name suggestions, not worthy endeavours. You might have been scouring the internet for two hours in order to save £5 on a purchase. You’ve saved £5, but is it worth it? It’s effectively a wage of £2.50/hour. If you wouldn’t accept that from your employer, why are you trading your free time for such little value? Stop these ‘time-wasters’ and spend more time on the things you want to do. Yes, the pennies do add up to the pounds, but squeezing every last penny can lead to a negative state of mind where you lose perspective of what actually matters.

Consider how these quadrants apply to you. Do you think about decisions in this way, or does your prioritisation need some work?

THE MOST IMPORTANT THING…

People often fixate that they managed to save £2/month on their phone contract and congratulate themselves. Or they show pride in not having order a takeaway for three months. But many of those people won’t invest their money. If they did, they wouldn’t have to abstain from takeaways – they’d have enough money to enjoy three a week!

The most important thing is to lay out all the financial decisions you could make (including how much you earn, how much and where you spend, how you invest etc) and place them in the value / time matrix, ranking them by the size of the benefit for each hour of time invested.

Once you have this ranking, start from the top and fix the most important elements first. Then tick off your list. That way, you’ll spend less time and achieve better results. Then you can get on with the fun things in life, knowing your financial castle is solidly built on the rocks, not on the sand. It’s an organised way to avoid psychological traps and make your financial machine more efficient.