By Paul Gleeson BBS, QFA, CFP
This article also appears in the Celtic Connection, where Paul is a regular contributor.
In recent weeks, there has been much written about commodities and how recent global events may in time have extreme effects on the prices of various commodities. At the time of writing this article, gold has surged to a record high and is consistently staying over $1,400 an ounce. Oil is now over $100 a barrel again with predictions from many commentators that these and other commodities will move much higher in the short to medium term.
These are issues that none of us can control. But one very valuable commodity that we can control is time, or more specifically our use of time and this is something I want to explore in more detail here today.
Albert Einstein referred to compound interest as the 8th wonder of the world; the reason compound interest is so powerful, is time. I would argue that time is one of the most valuable commodities we have, but its discussion is not one that commands much space in the financial media. Much of what we see in the media is sound bites (particularly on television) and beyond our control. We can choose to act in a certain way with the information we receive, but we cannot control the information itself.
So when we read articles about the price of various commodities or the value of the U.S. dollar, our attention is being focused on a commodity whose value we cannot control. I personally believe time’s value as a commodity is 100% linked to how we each individually use it. When it comes to our wealth building, it can be extremely valuable if we use it wisely… and completely worthless if we waste it.
So for the next few minutes as you read this article, I would like to focus your attention on a commodity whose value I believe you can control.
Let’s consider two people, we’ll call them Cher and Tina. They are both 35, married with a young child. Cher and Tina work full time as do their husbands (Sonny & Ike). All four have good jobs and are in a position to save money each month towards their financial independence.
We will assume that Sonny and Cher decide at the age of 35 to save $5,000 a month towards their retirement. Let’s assume that Ike and Tina decide to spend their money on “other stuff” – leather pants and the like, and don’t start saving until the age of 40. However, because Cher and Tina are good friends and talk about their finances, when Tina & Ike start saving, they decide to save extra to catch up with Sonny and Cher.
Let’s look at how the numbers work out:
Sonny & Cher save $5,000 a month from the age of 35 to 60; they earn 7% annually on their savings
Total Deposits over 25 years: $1,500,000
Total Savings by age 60: $3,937,347
Ike & Tina save $6,250 a month from the age of 40 to 60, they earn 7% annually on their savings
Total Deposits over 25 years: $1,500,000
Total Savings by age 60: $3,190,038
As you can see, there is a huge difference between the two outcomes – $747,309 to be exact. This is how valuable time has been for Sonny and Cher. Even though both couples saved the exact same amounts ($1.5 million), Sonny and Cher used time more effectively and are now $747,309 better off than Ike and Tina.
These additional funds may mean they become financially independent earlier, which in turn may result in them not having to work into their later years. Not having the stress of working in your later years may very well result in a longer and healthier life, which means more time with loved ones and family. So you could argue that the clever use of time when it comes to one’s money can actually result in creating more time with family and friends.
Time, in all facets, is such a precious commodity – when it is spent, it is gone forever. It is so precious, but yet I think often so undervalued.
When it comes to your money, efficiently used time can be one of the most powerful wealth building tools you will ever have at your disposal. If you feel you may be wasting time in this regard, stop and change this today, you will thank yourself for doing so many years from now.
How has time affected your investments and financial planning? Let us know in the comments below!