We’ve all heard the saying time is money. “Christmas is a poor excuse every 25th of December to pick a man’s pockets,” says Ebenezer Scrooge in answer to Bob Cratchit’s request for time with his family on Christmas Eve.
Time can cost and make you money, but philosophically, existentially, and logically, it is not money. Time has value and meaning beyond our comprehension, while money is a base human contrivance. Granted, it’s a contrivance that, in sufficient quantity, can make living in our society a little easier, but when you really think about it, it’s not even close to time.
However, it seems like time can cost or make us money in lots of ways.
Consider taxes, for example. If you don’t file and pay on time, The IRS charges penalties and interest. That’s because Congress is spending at lightspeed and they don’t have time to wait for your dilly dallying. Here, time seems to have cost you money. But was it time’s fault, or was it yours, for deciding to sit on the couch watching TV and eating bon bons instead of preparing to pay Uncle Sam?
Truth be told, if you didn’t have your tax information organized three to four months before the end of last year as part of an ongoing tax planning effort, even if you do file on time, you’re going to pay more in taxes than you have to. Tax planning doesn’t happen between January 1st and April 15th, it happens all year long.
But the best example of time seemingly costing or making money is compounding interest.
I just read an article about the advisor for one of the founders of Google. I disagree with some parts of this article, especially the part about paying off debt ASAP (and here’s my previous explanation for that). But the author says he finds the most widely misunderstood financial concept is compounding, and I think that’s true. Most people do not understand compound interest. If they did, there would not be a looming retirement crisis. He also says invest in index funds, and index funds are great, but they do not compound interest. For money in an account to become ever bigger with time, there can be no decline in value, and all mutual funds, managed or indexed, have risk of loss. That’s right, you heard me, your 401(k) does not compound.
Time does not actually make money, but it does take time to make money. The article I referenced above defines compounding as “to intensify or become bigger with time.” In other words, it continues, it’s “interest on interest.” There is no product, advisor, or investment strategy that will make you rich quickly. Saving consistently, putting some of your money in saving vehicles that provide you the ability to take advantage of compounding interest, and some of it in risk investments that offer the potential for growth, is the only way to increase monetary wealth. Anyone that tells you otherwise is selling you a bill of goods.
Here’s another example. My 17-year-old was running late for tennis practice and was caught driving 65 in a 45 zone. You might say his poor use of time is going to cost him. You’d be right, in some sense, but time itself did not cost us money. His poor management of it did.
He’ll probably lose his license, and while it will make the family routine problematic, I’m glad. I can plead with him to make good decisions, but the adverse consequences of our mistake are how we learn.
Time is not money. Time is family. Time is friendship. Time is Love. Time is life.