The Value of Time in Your Finances

I recently read a piece from Suze Orman about the value of time in your personal finances. The piece details how time can work for you or against you (it's your choice) and she gives examples dealing with mortgages, retirement and credit cards. Here summary of the article is as follows:

The crucial lesson of this quiz is that instant gratification isn't the key to financial success. Easy isn't necessarily right. Investing on the basis of what you hear the gang talking about at work or at a dinner party is easy. Investing on the basis of doing your own research so that you know what you're doing with your money is right.

It's equally foolhardy to assume that small amounts don't matter. We find it so easy to throw away "small" amounts of money on things we don't need, because we don't value a few dollars here or there. But I bet if you add up all the small ways you spend money you'll see that you're throwing away $50 a month (and probably a whole lot more). If you managed to save that $50 a month for 20 years, you'd have nearly $30,000 saved up.

Acting impulsively with money ends up being doubly costly. It often means you don't give your money the time it needs to work for you, and there's no more important investing rule than using the power of compounding -- putting money away and letting it grow over many years -- to help you reach your financial goals. The impulsive urge to go for the quick solution -- jumping at $1,000 a day, for instance, rather than the doubling penny -- undercuts you in the long term.

Financial success requires taking the time to weigh your options. And whether it's your IRA or your mortgage, it pays to make sure that time is always working for you, not against you.

Here's my summary of the issue: Either time can work for you or against you. It works for you when you save early and often, over the course of years and decades, and let the power of compounding and the power of time make you wealthy. It works against you when you prolong your debt payments, like when you take out an evil home loan or pay the minimum balance on your credit card. In these cases, the power of compounding works in favor of the bank/credit card company and put you in a worse-off financial situation as a result.

Comments

[Joe]

Another way that time works against people is with their credit score; you mentioned the minimum balance payment issue, which I completely agree with you on. If people just make that minimum balance, it'll eventually catch up with them, resulting in a missed and/or late payment, which compounds the problem further, making the borrowing cycle even more expensive than before due to the dinged credit.