Discounted Free Time Flow

When you win the lottery, you’re offered the option of:

1. the full amount, split up into chunks, paid out over many years

2. a discounted amount paid out immediately

So, the Powerball wasn't about to cut a $1.79 billion check to the winner on Day 1. Instead, the 2 winners have the choice of taking their split winnings as:

1. $895 million paid out over 29 years

2. $410 million paid out today

As a straight-A business school student, I know that the two lottery options are closer to “equal” than their absolute values suggest. “How could $895 million be equal to $410 million?” one might ask. Well, because, we must take into account the impact of discounting.

Discounting future cash flows in order to arrive at their true value today. But, that always begs the question, "What’s the appropriate discount rate?"

Well, the answer — much like the answer to most of life’s questions — is, “It depends.”

• It depends on what you could be spending the money on. Do you have a purchase you need to make?

• It depends on your opportunities for investment. Do you have a high rate of return you might be able to expect?

• It depends on your present fiscal position. Do you have debts to pay down or will the money just be sitting in savings?

We schooled-up business school students knew to take all of these factors into account. But we schooled-up business school students also would just borrow an assumed discount rate from the professor to run our calculations, for simplicity’s sake.

After all, it’s a complex consideration, arriving at the discount rate, and we need to assume something in order to compute our Discounted Free Cash Flow.

However, what I never learned in school was how to calculate my own Discounted Free Time Flow. “As I make decisions in the present, what’s the discount rate to apply to my time in the future?”

As luck would have it, I’ve won the lotto already. Without even buying a ticket, I somehow won the birth lottery.

I’m here. I’m alive. I got gifted this vast abundance of time. 29 years, 4 months, and 19 days, so far, as of today.

• 352 months (and 19 days)

• 1,533 weeks (~38% of my 4,000 weeks)

• 10,733 days (1,533 of which were Mondays)

• 257,592 hours (35,126 opportunities to watch The Dark Knight trilogy from start to finish)

• 15,455,520 minutes (and yet, I still convince myself that I'm too busy to meditate for 10 minutes)

• 927,331,200 seconds (as the clock keeps on ticking & tocking & ticking...)

Since I win the lottery each day I awake, I must continually decide how to redeem my reward.

“Do I want to receive all of my free time now? Or would I rather experience it in chunks, paid out over many years?”

Much like the business school-approved discount rate question, the answer to this one is also, “It depends.”

• It depends on what I could be spending the free time on. Do I have a trip I need to take? Passions I need to create? Or loving relationships I need to cultivate?

• It depends on my opportunities for investment. Do I have a high rate of return I might be able to expect? Can I invest my free time today in order to create a disproportionate amount of free time in the future? But this creates a bit of a circular reference, because it begs the question: “Do I know how I’ll value that future free time once I get there?”

• It depends on my present freedom position. Do I have debts to pay to neglected loved ones or will I just sit there watching The Dark Knight trilogy?

We untrained business school students know to take all of these factors into account, because we know that resources are scarce. But, it’s also a complex question to answer.

So, often, we just accept society’s assumption, “Receive all your free time when you retire”, for simplicity’s sake. It’s easiest to just assume that all of these hobbies, adventures, creative endeavors, and loved ones will be waiting for us in the future. It’s easiest to just assume that the way other people spend their time, the way other people value their lives, will also solve our Objective Function.

After all, we need to assume something about the future in order to compute our Discounted Free Time Flow.

But, as the business school professors drilled into our heads way back when: