YOUNG ADULTS: FINANCIAL LESSONS SERIES - PART ii

Time: Our Most Valuable Asset

As advisors, we have access to a plethora of financial tools from savings, qualified/non-qualified accounts, life insurance, real estate holdings, business interests and tax strategies to name a few. These are tools and strategies that we layer in to build up and maintain an estate. It is a complicated process to monitor and manage these different instruments all at once. These tools are referred to as the 'basics' in our industry, which is not entirely accurate. The most basic and valuable tool we all use is time. Time is our most valuable asset, because once spent, you cannot get it back. It is quite literally priceless. 

​The Time Value of Money is the principle that "a dollar today will be worth more than a dollar tomorrow." It is the most significant concept in personal finance where time causes the constant erosion of value. Our purpose as financial advisors is to educate clients that a dollar today can actually be worth more tomorrow. Time influences money in every facet, from the appreciation of real estate holdings, to return on investments, to interest rates on debt, to inflation's depreciation of the very cash in our wallets. The smallest percentages compound over time to create massive disparities. This concept will work continuously against you until you learn how to leverage it for your own advantage. Time can be both the carrot in front of us and the stick behind us. 

​​Don't believe me? Let's look at an example.

Let's say I have $100,000 in a Traditional IRA. I want to retire and be able to live comfortably once I do. I estimate $2,000,000 is my target goal. Traditional IRA contribution limits are $7,000 for 2024, so let's assume I am putting away the max. of $583.33 monthly. If we assume a 5.5% interest rate, it will take me 40 years and 10 months to reach my goal. 
 
What happens if I don’t contribute the maximum?

Instead of the maximum, I think I only should put away $400 in monthly contributions. Now it will take me 4 additional years to save up to my goal…If I only put away $300 a month, it will cost me an extra 6 years and 1 month of contributions. 

The power of compounding interest means small discrepancies do not add up to much over one day but create sizeable differences over decades. Many of us have heard the example of how making coffee at home instead of spending $5 at Starbucks every day makes a difference. This is true in the long run, but time and compounding interest affect much more than our monthly budgets. We cannot ignore the importance of starting early, instead of waiting until "the right time.” 

Waiting to invest in our futures incurs a cost. If you choose to wait for a six-figure salary before contributing to a 401k, it could necessitate extra years working to make up the difference. If you wait to get life insurance until you are married, you could have higher premiums. 

The longer you wait to time financial decisions around specific life events, the more opportunities you lose out on. Your financial security is reliant on your decision-making. Life will always have challenging circumstances, but it is your choice to be proactive or reactive. Time is our most valuable asset, and not a notion we should take for granted. 

Empowering generations,

Riley

Ryland Hudack
www.financialsynergistics.com

P.S.  If you missed my Part 1 blog entitled, Estate Building: Lessons for Every Generation, CLICK HERE to read.

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