The wisdom we have always heard is: Time is Money. We can interpret this quote in many ways. But in this article, we would like to interpret it from the viewpoint of wealth building.
What do you think, is time = money?
From Investors’ Perspective: The Tale of Two Investors
Let us start with an example of two investors. Call them Person A and Person B.
- Person A: Invest $200 per month from age 25 – 35. No more contributions afterward. Total investment is $24,000 over 10 years.
- Person B: Invest $200 per month from age 35 – 65. Total investment is $72,000 over 30 years.
Which among the two has more retirement money by age 65? Take your guess!
Assuming a 7% annual rate of return, by age 65:
- Person A’s investment will be worth $252,418.42
- Person B’s investment will be worth $226,705.89
That’s right, Person A, who invested three times less than Person B, has more by the same retirement age of 65. What makes the difference? Person A started investing ten years earlier.
Compound Interest + Time = Money
Why investing ten years earlier can make a huge impact? The answer is compound interest. Compound interest is when you reinvest the interest you earn, thus earning even more interest. If you keep compounding for a long time, your investment will snowball and grow faster. This is the magic of compound interest that every investor should know. Compound interest works wonders with time.
Even the legendary investor, Warren Buffet, acknowledged this principle as one of the success factors in his investing career.
Why is this important?
If you know about this compound interest, having time on your side can help you accelerate your wealth building. Instead of starting at 35, imagine how much more you could have accumulated if you started at 25. Assuming an annual rate of return of 7.5% on your investment, you can already double your money within that ten years difference.
So, Time is Money?
Yes, in this context, Time is Money.
It is crucial to start investing as early as possible. The longer your investing horizon is, the more you can enjoy this magic of compound interest.
Have you started your investing journey? As popular wisdom says: “The best time to start was yesterday. The next best time is now.”
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From Active Earners’ Perspective
Productivity
Time underutilized can represent lost opportunities to earn money and build wealth. Procrastination or spending time on non-productive activities may cost you opportunities to increase your income or wealth.
Prioritize tasks and minimize distractions in your life. In this context, ‘Time is Money’ emphasizes the importance of effectively utilizing your time to build wealth and achieve financial goals.
Trading Time for Money
When you work, you are trading your time for money. As much as we advocate wealth building, remember that time is limited. You can spend your time earning money or use it for other meaningful things, such as family, hobbies, and volunteering. Yes, although time is money, it’s still up to you to decide whether the money you earn is worth the time spent.
Time is a valuable resource for wealth building, but ultimately, the choice is yours to find the right balance.
From an Opportunity Cost Perspective
Time represents opportunity cost, the cost of forgoing alternative investment options when focusing on one option. For example: let’s say you invest in the stock market; the opportunity cost is the potential return you could have earned if you use your money for other purposes, such as investing in different asset classes, expanding your business, or paying your debt/mortgage. The time spent pursuing one opportunity is the time you do not spend on other alternatives. Be mindful of opportunity costs and where you allocate your time and money.
There are many ways to interpret ‘Time is Money.’ But whatever your interpretation is, you will probably agree that time is a valuable resource for wealth building, so use it wisely.
