Spend to buy "time"

If there is one commodity which is more important than money.. it is time.

The big difference between time and money is  the fact that money if lost can be earned back again, unlike time where time once lost can never be brought back.

With the basic understanding that time is more precious than money,  how should that change our financial habits ?

1. Spend money to save you time and energy
This is a critical aspect that one needs to understand properly. We are all busy.. busy with work .. home or professional. In the rat race we forget to spend time with people who matter the most to us.. our family- parents children even spouses and of course our friends.

We want to earn money for us being able to live a good life and a good life doesnt come with only a better car or a better house... it comes with the people you spend your life with ie your family. If one cannot spend time with them.
Quality time and the min quantity.. then earning lakhs of rupees makes no sense.

So, when looking to spend money , spend it on those necessities which allow you to spend ( in a conservative non expensive way) time with your family. This may mean getting some extra help around the house or a driver which enables you to be less tired when you come home or that nice vacation with the family. Go and visit the grandparents houses or your cousins ..all which build solid familial bonds and nets of safety for you and your family.

2. Spend money which saves you time in the future

Spending money on your education or enhancing your skills for now or the future all will enable you to generate further income and create new income streams for yourself. These investments will allow you to spend less time in the office or create more flexible time for yourself when you need it the most.

3. Spend money to generate passive income

Passive income is the best income of all. It continues to generate even when you are not doing anything, because someone else is doing the hard work for you.

My elder cousin and his wife as an example opened up a pre formal school. They invested time and money and now with the school running well my bhabhi ( sister in law) can hand over the operations to a new principal and enjoy the time she has generated .. with regular income.

So, time is critical and so spending money to "buy" time is the best possible way to spend your money..

Thats simplefinancialsense!

When should we start saving?

I was recently asked this question by a friend of mine and i thought i would write this post to explain the answer.

The answer is really quite simple-- As early as possible.

if you save 1000 rs / annum for 2 years and if you save it for 5 years -- you will save 2000/- and 5000/- respectively.

Simple right?

Let me add another complexity into this calculation.. the money saved for 2 yrs will be MORE than 2000/- and the money saved for 5 yrs will be MORE than 5000/-...

Why?
Because each year you save-- the money earns INTEREST!!

and each yr you save-- the money earns interest on the prinicipal+ interest earned last year..


I am enclosing an xl sheet which you can use to understand what the amount saved will be if you start saving Rs 1L per annum till you are 60.

http://rapidshare.com/files/329329903/Compounding_example.xls
( you can download it using the link on top)

In that if you are saving Rs 1L

from the age of 25 ( ensure cell J4 is 25) you will save 36,24,057/-
from the age of 20 ( ensure cell J4 is 20) you will save 54,49,217/-

Hey this is definately not the same as 5 years of saving 1L each... there is a difference of 18L ... not 5L...WOW!!

that-- is the power of compounding.. and what time can do for you..

so start saving as early as possible..

Happy Investing..!

PS: change the interest earned rate in cell J5 to 10% and see the difference

Starting year                  Saving @60 yrs
25                                    59,02,153
20                                    95,05,270.