The Time Value of Experiences

Hey everyone, and welcome to the hundreds of new readers who joined us in the last week (shoutout to Downtown Josh Brown & the Ritzholtz guys for the boost). Today, we’re going back to math class and having some fun with formulas, with a twist.

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Let’s hop into it.

Last week, I came across this paragraph in a book that blew my mind.

Wow. “To understand time we need to reflect on ourselves.”

When you really pause to think about it, time is one of the greatest mysteries known to humans — one of the most valuable things we have. Allocating money is an industry worth trillions of dollars. And yet, we rarely stop to think about how to allocate our time.

In a previous post, we introduced this concept of experience points (“XP”) as a quantitative (albeit subjective) measure of a life well-lived. We’ll refresh some of those topics today, but check out that post for a deeper dive if you haven’t yet.

We can treat XP like money — as we learned in Finance 101, a sum of money is worth more now than the same sum will be worth at a future date due to its earning potential in the interim.

“A bird in the hand is worth two in the bush,” or something like that.

Similarly, one XP today isn’t worth the same as one XP tomorrow. Memories & experiences earned today compound over time in the form of what we call “memory dividends” — the value of the stories they create, which can be retold time and time again and impact more and more people.

An experience earned today can be re-invested immediately to shape the person we become (both positively and negatively), while an experience in the future cannot — it’s just a hypothetical “what if”.

Let’s pause to emphasize a point — storytelling is quite possibly the most powerful tool we have as humans. Everything is a story.

And the great thing about stories? They’re different for every person who tells them. They connect the past, present, and future. They provide a guiding light for how we live our lives. Every person we’ve impacted or been impacted by, every triumph & heartbreak, everything we’ve done, from the crazy to the mundane, defines who we are and who we will become.

I say all of this to highlight that storytelling makes us human. And because of that fact, it’s an essential component of the yield that experiences we have today earn in the future.

We also said that, of all the key variables in life — health, money, and time — time is the one we can’t create more of.

In finance, we often talk about the time value of money, but what about the time value of experiences?

If we treat XP like we treat money, the present value of experiences is the sum of discounted XP flows into the future.

And if we want to maximize the future value of our experiences (i.e. what we finish our lives with), we must take into account that time factor.

What would this look like mathematically?

The key variables that determine future value are 1) the discount rate we use, and 2) the number of periods (or the amount of time to compound).

For simplicity, let’s assume we can’t create more time, so the total number of periods (years) in one’s life are fixed (give or take a few years due to good health choices). It stands to reason, then, that:

Number of Periods (n) = Your Age When You’ll Die - Your Age Today

The “discount rate” (r) for XP is an measure of the time value of experiences. This value is mostly subjective, varying from person to person, but it’s really just the level of personal fulfillment you get into the future after having experienced or accomplished something.

For example, great stories we tell countless times (such our first time traveling alone or our first love), that have played a major role in shaping who we are, likely have higher discount rates than boring choices like, say, watching a show on Netflix for the 10th time.

In finance, when we measure the discount rate, “riskier” investments have higher discount rates.

I find that life is often similar. The “riskier” (or maybe a better term would be “uncomfortable”) an experience, the more it stands to pay off after the fact.

The most meaningful moments in life were often preceded by some sort of discomfort or hardship.

“Life begins at the end of your comfort zone.”

The tradeoff between higher discount rates (more risk) and higher return is exactly what this means. When we seek discomfort, we are investing XP upfront (in the form of fear, uncertainty, pain, or lack of instant gratification that an experience provides), in exchange for greater value of future XP flows (in the form of how those experiences change us and continue to reap dividends in the future through stories).

Okay, cool — why does any of this matter?

Well, our appetite for risk (the discount rate on XP) declines as we get older. Our health tends to weaken, we start to develop more responsibilities (like a family and other dependents). So mathematically, it pays off more to have the riskier, higher-yielding experiences while we’re young for two reasons:

1) There are more compounding periods remaining in the number of years we have left to live after.

2) The yield on those experiences is greater earlier in life (because the discount rate is higher).

Risky experience are more likely to return outcomes in the tails (both extreme losses and extreme gains).

BUT, as with investing, we don’t want to take stupid, reckless risks. Not all experiences (choices) are created equally. Dumb choices will cost us experience points. In a capitalist society, money and time can be exchanged for experiences, and we must be selective in choosing those experiences (in the same way we would be selective about what we invest our money in).

We need a mix between optimism (emphasis on the present) and conservatism (preparation for the future). Making the most of today while preparing for tomorrow.

So how can we frame the delicate balance between the impact of our choices on both the present and the future?

We can break every down every choice we make somewhere on a 2×2 matrix — positive or negative impacts, and in the present vs. in the future.

Delayed Gratification — negative in the present, positive in the future

The first section we’ll call “Delayed Gratification”. These are choices that are uncomfortable in the present, in exchange for positive future payoffs (sometimes also called “Type 2 Fun”).

For many people who don’t enjoy their work, their job falls into this category. They’re doing something they don’t enjoy in exchange for money, which, presumably, they will exchange for experience points in the future. If they don’t enjoy their work, it’s not providing them any XP today (and potentially actually costing them).

Similarly, things that we don’t enjoy but we know are good for us would fall into this category. Maybe it’s going to the gym or eating leafy greens — in any case, these things tend to be good for us in the long run.

The key is to shift our mindset by convincing ourselves to enjoy things in the present that can also positively impact us down the road.

Just Plain Bad Decisions — negative in the present, negative in the future

The bottom left quadrant is what we will call “Just Plain Bad Decisions”. Actions in this category cost us — both now and in the future. We should avoid choices that fall into this category at all costs.

These might include causing ourselves or someone else harm, with no immediate benefit. I’ve found that a lot of these decisions occur after midnight and under the consumption of alcoholic beverages. Take with that what you will.

We’ve all made them, and we all regret them.

Instant Gratification — positive in the present, negative in the future

Like Just Plain Bad Decisions, we also want to be hesitant with Instant Gratification, because these experiences may benefit us today, but they provide little or no yield in the future. Put differently, their rates of return are zero or negative.

Examples might be smoking cigarettes for a quick nicotine rush, lounging around scrolling TikTok, eating junk food, or polluting the environment. All of these actions may feel good or provide short-term solutions to our problems, but in the long run, they’re actually destructive.

Just like we can shift our mindset to convince ourselves to enjoy things with positive benefits in the future, we can also trick ourselves to not like destructive experiences that have negative long-term impacts. It’s best to be disciplined and not give into urges that are net-negative.

The Optimum — positive in the present, positive in the future

The top-right quadrant is the sweet spot. We should seek out as many of these experiences as we can, as they’re beneficial (to ourselves, others, and the world around us) in the present and in the future. These experiences yield high rates of return, so we should try to have them and establish these habits early and often to maximize compounding opportunities.

Examples of these choices might include sports that you enjoy, running (if you’re like me and enjoy it), eating food that is both healthy and delicious, sleeping well, helping others, or just vibing with friends.

We should strive to push experiences & choices from the Delayed Gratification quadrant into this quadrant by enjoying the process and appreciating the little things in the present, even if they don’t provide the rushes of dopamine that other choices might.

How big is the choice and who is impacted?

As we think through the impact of our choices, we should also keep in mind the magnitude of the XP flows. Some decisions are inherently larger than others — for example, what we choose to do for our career and who we choose to marry will have disproportionately large impacts due to the sheer amount of time they affect. Most of us work and are married for large percentages of our lives.

Smaller decisions, like the decision to drink alcohol (when done moderately), will likely have smaller impacts on XP or Net Fulfillment. We all know that alcohol is a net negative for our health physically, but if a few drinks enable us to connect more deeply with others and have a few more memorable shared experiences, it might prove net-positive in terms of XP. I’m not advocating one way or the other, only explaining that some decisions will not make or break the XP bank. We can have fulfilling lives whether we drink or not, and the impacts of alcohol (both positive and negative) vary from person to person, so it’s up to us to be honest with and decide for ourselves.

It’s also possible that forgoing certain experiences today will have a net-positive impact on XP in the long run (like saving enough money to provide more for our kids in the future). This is where magnitude is important, because saving additional money typically has diminishing marginal returns after a certain point.

And beyond the magnitude of choices for ourselves, we should also keep in mind who the stakeholders are with our actions. While in most cases, almost no one cares about the decisions we make as much as ourselves, certain choices impact others and the world at-large. Just another thing to keep in mind in our personal XP calculation.

Shifting our mindsets to align present and future interests

We should recognize that there’s a special characteristic of experience points — they’re subjective, and they vary depending on when we have them.

The value of cliff jumping in Hawaii is not worth the same to me as it is to you. We might ascribe more value to enjoying a meal with family during the holidays when we’re older than when we’re young.

The best part is that we have the power to decide how much an experience is worth to us.

We decide our values.

If we approach life with a mindset of abundance, we can convince ourselves (within reason) to enjoy things in the present that will benefit our future selves. Similarly, we can train ourselves to dislike things in the present that we know have negative consequences in the future.

Aligning our present and future interests is not only good for us, but it allows us to live a life that is true to our authentic selves and stop worrying so much.

One final note is that it’s important to identify which decisions are in our control and which are not. We have more control than we realize, and even when we don’t, we can control how we respond to what happens to us.

Generally speaking, we probably underestimate risk in the short-term and over-estimate risk in the long run.

Experiences are like money — their value to us varies at different phases of life, and they’re worth more today than they are in the future due to the yield they provide. That yield can take the form of stories, as well as how the experiences change the person we become.

The key is to decide which experiences are worth pursuing, and only we will know the answer to that question.

In the end, what do we want to be remembered for?

Our memories and stories will be all we have — they transcend time and generations. They will be what we pass on to our grandchildren and their grandchildren.

Life is short, but it’s also incredibly long. Time is nothing more than a series of stories, so let’s get out there and make more of them.

-Owen

Fresh Finds

Nathan Baugh — The Secrets of Creativity (The Danny Miranda Podcast)

Podcast | 92 minutes

This interview with Nathan is packed full of value. Nathan’s story of leaving his consulting job to go all-on on writing after a near death experience just a few years ago is inspiring, and he’s one of my favorite writers to follow. He talks about writing fiction, his personal creative process, and why he thinks storytelling is so valuable. Definitely check this one out.

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