Time is money is one of the greatest cliches of all time but when you dive a little deeper you find just how much one influences the other. Join us this week as we explore how you can use money to buy back some of your most precious commodity – your time.
The Time Value of Money
In our brains it is easy for us to think that $100 now is the same as $100 in a year, but this is not the case. Host Andrew Baxter points out that $100 today can be invested in ways that builds it into more in a year’s time, and thus is worth more to you now than in a year. Inflation works slightly differently, but operating under the assumption of investment gains on your money in a given time period gives rise to the idea of the time value of money. This is an important concept to wrap your head around for when you run into situations where you need to make decisions about money now vs money later.
Compounding interest is a term we often hear however it usually comes in the form of mortgages and what we are paying out. We can, however, get compounding interest working for us. Host Andrew Baxter explains that in a similar concept to the first topic, we are looking for gradual returns on our money through investments, however we get this compounding factor when our returns are reinvested and we then can get those returns on our initial capital as well as the returns we received the first time round. From there, it is a matter of continuing this process over and over again and you have yourself compounding returns. This is an extremely powerful way to build your wealth and a strategy used by many in the investment space.
The Importance of Getting Started Early
Modern society has increased the demand for instant gratification but in reality delayed gratification is the key to being able to buy yourself time in the future. Again, this topic follows on from the previous topics of this podcast and it’s important to consider. Andrew notes that those who start getting compounding interest to work for them early are much better off than those who wait until later in life to start the saving and investing process. Some short term sacrifices in terms of maybe spending less and saving more really does add up as the years go by and can be one of the most important factors in putting yourself in a financial position to buy your time back as you get older. If you know what you want out of life and where you want to be down the track, starting early should definitely be something on your radar. Getting started is always the hardest part because you don’t see the progress quickly but if you hang in there you will start to see the results fairly swiftly.
The Risks of Playing Catch Up
Unfortunately, certain circumstances can lead those who are a little older to end in a poor financial position later in life. Trying to get back on track can be a really jarring change in what you are doing. The underpinning theme of this podcast is trying to save time and use time effectively to your advantage but the problem is time that has passed without being used is wasted forever and there is no getting it back. Without having had the luxury of time working for you, you are forced to take more aggressive action than what you would have if you’d started early. If you remain a little more risk averse, what you are then faced with is the fact that your money probably is not going to grow to anywhere near where you would like it to. Overall, it is vital to understand how time can work for you throughout your life and grow your wealth and the fact that money is the only thing you can use to free up your time in the future.