We all understand the concept of net income or net pay. If you’re an employee, it’s what you see deposited into your bank account after Federal & State taxes, Social Security taxes, Medicare taxes, etc. are all withheld. If you’re self-employed, it’s what you’re left with after you set aside the funds for many of those same taxes plus paid off your business expenses.
In real estate, the term is referred to as net operating income. It’s the bottom line after taking your gross rents and subtracting out all operating expenses including management fees, repairs, property taxes, utilities, etc.
Gross income and gross rents are important, but at the end of the day, we all know that it’s the net income that matters because it’s that number that determines how you live your life.
We seem to focus our efforts so heavily on our net income, but how many of us give that same energy and thought when it comes to our time. Sure, we all have the same gross time, 24 hours or 1440 minutes a day, but how much net time do you have? This is the time you have left over after chores, obligations, commuting, necessary sleep, eating, working, and other things you don't enjoy doing. What remains is time that you can spend doing whatever you choose.
Many of us are faced with dropping reimbursements, increasing overhead costs, and greater costs of living. . . what seems to be our solution? We work more. We trade more time for money, and though we might be able to maintain the same level of income or perhaps an increase, we’ve done so by giving away large chunks of our net time. We’re suffering from a drastic reduction in our net time.
Focus on Gaining Net Time
When people want more time to do things, the first thing we usually give up is sleep – we stay up later and set the alarm earlier. But that only ends up hurting your health, your mood, and your energy. In my opinion, this solution is not sustainable.
Instead, think about being more efficient. Think about how to reduce those things that cut into your net time.
Let’s consider each of these.
Automate and Outsource
One of my favorite books that talks about the concept of net time is The 4-Hour Workweek by Tim Ferriss. He's a huge advocate of automating and outsourcing whatever you can to be efficient with your time.
Are there things in your life that you could automate or outsource? Here are just a few examples:
As a family, we tend to buy the same things every trip to the supermarket or to Costco. With a growing family, we go 1-2 times a week, each time taking an hour all-in. Well, we had no idea that we can just have it all delivered for free (over $25) with prices essentially identical to what’s in the store.
We’ve been doing that for Costco deliveries but we literally signed up today to have our groceries delivered to us from now on, which should save us 1-2 hours a week and 4-8 hours a month at no additional cost.
Paying Bills & Tracking Finances
If you’re not automating your bill pay for recurring bills, that’s wasted time. Set up automatic payments for everything and move on. Yes, I understand it’s important to review your credit card statements, but we look at it once briefly every month.
Do you go look through multiple websites to find all your financial info? That's wasted time. Throw it all into Personal Capital and login once.
How many of you enjoy cleaning your own house from top to bottom? Honestly, my wife and I do not enjoy it at all. We're a dual physician family and we’ve both cut down our clinical times quite a bit, but we did that to spend more time doing the things we love with our family. We decided that we're going to outsource our cleaning. It takes a professional crew about 3 hours and to us, it's so worth the cost.
On the advice of Tim Ferriss, I’ve hired virtual and real-life assistants to perform tasks from time to time. I’m happy to have someone else do some of the tedious things I would normally have to do myself. This allows me to do useful things with my time, like running and planning my businesses and educating myself further. I consider the money I spend on assistants an investment. Best of all, these assistants allow me to spend more net time with my family and friends.
What do these assistants do, exactly? Creating spreadsheets, scanning, dropping off packages, helping to figure out travel plans. . . the list goes on. The more I use them, the more I find ways for them to be helpful and ultimately the more free time I create.
Minimize Commuting or at Least Be Productive
I've heard other bloggers like the Physician on Fire praising the benefits of living close to work. I also really enjoyed this article by the Washington post titled, The Astonishing Human Potential Wasted on Commutes.
The average person spends 9 full days dedicated to commuting each year and it's getting worse every year. Is there a way to reduce this? Some people are willing to commute a long way for a little more pay. Is it truly worth it?
I recently talked to a physician who was mulling a change in job for an increase in salary. The problem is the commute was 90 minutes away. That’s 3 hours of commuting every day! He told me the downside would be that he would never get to see his young children during the week as they'd be asleep by the time he got home. Is the increase in salary worth the loss in net time?
I’ve considered getting rid of my car altogether and using a rideshare service like Uber or Lyft exclusively for my commutes to work. According to AAA in 2017, the average cost of owning a car is almost $8500/ year or $706/month when you include, gas, maintenance & repairs, and depreciation. But they didn’t even include monthly payments for a car. If you factor that in, a car could cost you $40-50 a day.
Considering this, daily rideshare seems more appealing, especially if I could be productive on that commute, taking care of some things I would normally have to take care of during other parts of the day, again creating some free time.
Don’t work for your money, make your money work for you. We’ve probably all heard this saying but how many of us actually follow it?
Early on in our careers, making money relies on our own human capital, meaning we have to put the time and effort in to build up some savings. For physicians, that truly starts when we finish our training and get paid attending salaries.
According to the White Coat Investor, the first few years out we should be focusing on getting rid of our student loans. I’m a huge believer of that, but I also believe that you could and should start thinking about creating multiple passive income streams at the same time.
I personally set aside at least 20-30% of my income to do just that. I do invest in the stock market, mostly within tax-advantaged accounts. However, for cash flow, I focus on investing in real estate – direct ownership, syndications, crowdfunding, etc. My ultimate goal with these investments is complete income replacement and total time freedom.
I've also been fortunate to be able to create some businesses that are flexible in time and location, like this blog. (If you'd like to know how much flexibility it creates, subscribe to my quarterly newsletter.) Because of the cash flow from these businesses, I've started gradually retiring, cutting down my clinical time significantly but remaining at the same income level or higher.
The Bottom Line
Ultimately, the most precious commodity is time. If we think of time as currency, something we spend and can never get back, then how we use it becomes even more important.
Many people see wealth as having a certain threshold of money, but I see true wealth as having the freedom to do whatever you want with your time. The most powerful thing about money is not the objects you can buy, but it's the time you can free up – net time.