Why Am I Doing This?
Today’s post is going to be a little bit meta because it provides one answer to the question “why am I doing this?” In case you’re joining me recently, I’ve been working on “It Can Be Easily Done” for around a year, in my spare time, from initial concept to the site that you see today. It’s been a learning experience for sure, and bit by bit the site is taking off.
However, it’s also been a lot of work. Why work on a blog rather than anything else I could be doing? I could be reading. I could be playing video games. I could hit the club (I guess!?!). I could be decompressing after a long day of work by any means possible. But I’m not. I’m blogging. And on that note, should you start a blog, too?
Why am I doing this?
For me, “It Can Be Easily Done” is a way to spend my time investing in myself (and hopefully help you along the way). While there are articles that provide listicles about how to invest in yourself or cite studies that suggest high rates of return from doing so, I want to dive a bit deeper into the math and show why when investing in yourself the odds are ever in your favor.
How to Measure Tangible ROI
First, let’s talk about return on investment and how it works in financial contexts. The formula is simply
ROI = (Gain from an investment – Cost of an investment) / Cost of an investment
The nice thing about this calculation is that it puts everything on an equal percentage footing. Intuitively, things that cost a lot (of money or time for example) should provide better results than things that don’t cost much. Once you control for cost, you can compare different options more effectively.
Let’s consider an example:
Say that someone is considering becoming a seller on Etsy. Let’s say each item they make takes 1 hour of time and $10 of materials to produce. They can sell each item for $30.
Not taking time into account, their ROI is ($30 – $10) / $10 = 200%, not bad for something that seems pretty scalable.
But let’s consider time. If this person makes $50k per year (~$25 per hour) in their day job and the Etsy hustle took time away from that job 1:1, then ROI would be ($30 – $10 – $25) / ($10 + $25) = -14%, which is quite bad. And this doesn’t even consider taxes.
Now in reality, a side hustle probably doesn’t take away from a day job 1:1. If we spread the $50k over the 8760 hours there are in a year, the calculation looks like this: ($30 – $10 – $5.71) / ($10 + $5.71) = 91%, which seems reasonable, assuming that the extra work is sustainable.
The key lesson here is to consider opportunity costs and the value of your time when you are thinking about ROI.
Now we can compare the Etsy idea to another pursuit, like taking an online course in web design. Let’s assume that this course costs $1000 and takes 40 hours to complete.
Now, using the time value from above we have:
ROI = (Gain – $1000 – (40 * $5.71)) / ($1000 – (40 * $5.71))
But how do we calculate the gain? We’re uncertain, so we’ll have to make some assumptions. To handle this, we can first consider best case and worst case.
Best case, this course allows the person to become a full time web designer at $100k per year. Worst case, they don’t do anything with the knowledge.
That gives us a spread as follows:
Worst ROI = ($0 – $1000 – (40 * $5.71)) / ($1000 – (40 * $5.71)) = -100%, horrible
Best ROI = ($50000 – $1000 – (40 * $5.71)) / ($1000 – (40 * $5.71)) = 3971%, amazing
That’s quite a lot of variation over the course of a year. What’s going to matter here is the expected value of the payout, which depends on how likely each outcome is. We won’t go into the exact math in this post, because it’s still an estimate.
They key with this example is that the upside is asymmetrically large for learning web design vs. setting up an Etsy shop. You’ll always deal with uncertainty, but having just a bit more rigor and putting things on equal footing can really up your game.
What Not to Do (Exclusively)
Now let’s compare the above to a different idea; one that’s very popular around the internet. Frugality. Cutting costs. This is certainly a reasonable thing to do, in some circumstances, but a quick ROI analysis that takes into account time and opportunity costs demonstrates that it’s not always a slam dunk.
First, notice that while earnings are effectively uncapped, cost reduction has a natural floor. You can’t save more money that you are spending by cutting costs. That is, you can’t cut costs past $0. Moreover, while some cost-cutting suggestions don’t take much time (e.g. don’t buy avocado toast), others can be extremely time intensive. This doesn’t make sense for a highly paid person.
Let’s look at an example. Say that our prospective Etsy seller/web designer also loves a clean house. She can spend 5 hours a week making it happen or pay a house cleaner $50 per week to do it for her.
Baseline, I’d calculate the ROI this way:
((20 * $5.71) – (4 * $50)) / (4 * $50) = -43%
In this case, maybe cutting costs makes sense because it would negate a very low ROI activity. However, consider that the opportunity cost of those 5 hours per week could be more than just the $5.71 hourly rate from salary. If this person instead spent those hours on one of the higher ROI activities (like the web development class), the calculation might look like this instead:
((20 * $25) – (4 * $50)) / ((4 * $50)) = 150%
Here, I’d definitely opt for the cleaner!
The key takeaway is that cost cutting is limited, especially if your time is valuable.
Let’s wrap up with a bit more math to demonstrate the true value of investing in yourself. Realize that time spent to increase your earnings is even more powerful when you consider compound interest.
There are tons of articles demonstrating that small changes in inputs can yield massive differences in end results over a long investment horizon. The value of both costs and benefits today get magnified if you assume that the money you make (or don’t spend) gets invested.
The math here can get complicated, so let’s just consider one simple demonstration. Each additional dollar that you can save at a 5% rate of return is worth around $13 after 10 years, $35 after 20, and $70(!) after 30. Perhaps the lesson here isn’t so much that you should invest in yourself, but simply that you should invest. Any time you spend that can compound is a huge force multiplier on your efforts.
Intangible ROI & Conclusions
Numbers, numbers, numbers. It’s great that it’s possible to convert time back and forth into money, even if just approximately. And it’s even better that the ROI calculation can help you to make better and more rational decisions about how to spend your time.
But let’s not forget that time spent investing in yourself has non-monetary value. Learning a language can set you up to meet new people and have new experiences. Learning a skill can feel good, but it can also lead to life changes as impactful as a new career.
Unlike time spent unconsciously, time spent investing with yourself sticks with you, compounding and building a foundation for a more rewarding, interesting, and yes, even an easier life.
To summarize, if you want to make your life easier down the line, consider spending some time investing in yourself to grow your skills and earnings. The math and intangibles act as a tailwind—go with the flow and let me know how it goes.
Your Actions for Today
- Take 10 minutes to brainstorm ways that you could spend an hour a week investing in yourself. Use ROI to do a rough prioritization, then go for it.
- If you’re already investing in yourself, let me know about it. I’m planning on building some case studies and you can get in on the ground floor.