Time is Money

money-bagsOne of the fundamental principles of managing money is that time and money are inextricably linked. People who are successful at creating wealth are those who understand the connection between time and money and use it to their advantage.

Time represents opportunity. You have choices about how you use every hour of your day. You can choose to exchange some of your time for money and you have a degree of choice about how much money you exchange it for.

You can use the principle of leverage to increase the amount of money you receive. Leverage is simply finding ways of using other people’s time or resources to multiply the value of your time; for example by running a business where you hire people and sell their time for more than you pay them.

Another way in which time and money are connected is the value of one dollar now is higher than the value of one dollar received at some time in the future.

One reason for this is that with inflation, a dollar you spend at a time in the future will buy less than a dollar will buy today. Inflation favours those people who borrow, particularly if they borrow to buy assets that go up in value, such as property.

Another reason is money can be invested for a return. If you have a choice between having one hundred dollars today and receiving one hundred dollars in two years time, it makes sense to have the money now, because you can invest it so that in two years time you have more than one hundred dollars.

By investing at a rate that is higher than inflation, people who start saving and investing early in life have a huge advantage over those who leave it until later.

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