Closer and More Expensive or Farther and Cheaper

Whether you’re a banker earning a million US dollar a year or a construction worker making a million Korean won¹ a year, you face the same dilemma: should you rent a place that’s closer and more expensive or farther and cheaper?

How Much Is Your Time Worth?

This is a personal finance topic worth deep thoughts, as it ultimately comes down to a question everyone must face: 
How much is my time worth? When you think about it, commute time is really a trade-off between time spent in a car / on a train or subway and time spent doing something you believe is/will be of high value to yourself. Or, you watch a lot of cable TV, Youtube, or Tik Tok videos. 
Should you choose a higher-rent apartment with a shorter commute, or a lower-rent apartment with a longer commute? 
This decision involves not only economic costs, but is also related to time management and your quality of life.
First, let’s look at the comparison of rent. Based on recent data, U.S. rental prices have seen a significant increase over the past three years. According to Zillow, the average rent in the U.S. has increased by approximately 22% from 2021 to 2023. As of mid-2023, the median rent in the U.S. is around $2,000 per month, up from about $1,600 per month in mid-2020. 

Cheaper? Wage Growth vs. Rent Growth

Waged employees, or as the French call it, les salariés, are disadvantaged. Let’s take a look at your wage growth.
According to the Federal Reserve Bank of Atlanta’s Wage Growth Tracker, the year-over-year nominal wage growth was 6.1% in December 2022, which is higher than the 3.6% average seen in 2019 before the COVID-19 pandemic. However, this growth has been accompanied by high inflation rates, which reached 6.5% from December 2021 to December 2022. As a result, the real wage growth—wages adjusted for inflation—has often been negative in recent years, meaning that inflation outpaced wage increases for many individuals.
Since real growth = nominal growth (what you see on paper) – inflation², your real wage growth is about 0, if not in the negative territory. 
That hurts, doesn’t it? How can it possibly make sense for someone not making least $100,000 then to afford some place nice? Again, ultimately it comes down to how you plan to utilize and monetize your time. You need to build up your “human capital”. 

Time Saved Might Be Money Earned

For instance, a cheaper apartment might have a monthly rent of $1,800, while a more expensive one might cost $2,300. From the rent alone, the cheaper apartment can save you $500 per month. 
However, considering rent alone is not sufficient for making a comprehensive decision because time cost is also a crucial factor.
Let’s consider the difference in commute time. If a shorter commute saves you 45 minutes each day during peak hours, this time can be quite valuable. According to the U.S. Census Bureau, the average American one- way commute time is around 27 minutes. Reducing this time can significantly impact personal productivity and overall well-being. If you commute for 1.5 hours, you probably feel like sh*t. I don’t believe you if you say you feel okay. 
Suppose the saved time at home is 50% productive. This means, if you save 11 hours per month, you effectively gain 5.5 hours of productive time. Over a year, this amounts to 66 hours. If your productive time is valued at $50 per hour, this translates to an additional $3,300 per year.
When you compare the rental costs with the time savings in crudely-calculated cash terms, you might find that paying higher rent for a shorter commute could be justified.

However, if the cost of higher rent strains your budget, it might be wiser to rent a cheaper apartment and find ways to increase your income.
Time is money. People often talk about saving and budgeting. This is a way of thinking that helps us save.

1. FX Rate: USD = 1365.98 Korean Won. As of 2024, August 9th. ↩︎
2. Expected inflation more precisely, but let’s leave it out for now since it unnecessarily complicates our discussion here ↩︎