You’ve probably heard of the adage, “Time is money.” A quick internet search attributes this line to Benjamin Franklin in a 1748 essay titled Advice to a Young Tradesman, though there are also sources that say it has been used by others earlier. Whatever its provenance, people typically use it to emphasize the importance of doing things right away, to not waste time since it is limited.
Nonetheless, time can literally make you money if you know how to use it. Time can build wealth, reduce risk, promote discipline, and help achieve long-term goals. The key is knowing how to harness it. This article explores five critical reasons why you should regard time as your most valuable financial tool.
1. Time Maximizes Compounding
Compounding is the process where an investment earns not only on the principal but also on the accumulated interest over time. It is essentially interest on interest. The longer your money is invested, the more time it has to grow through this self-reinforcing cycle.
Consider this hypothetical example: Suppose two friends, Rachel and Joey, want to each invest $5,000 annually in a retirement account with a 7% average annual return. Rachel starts at age 25 and stops after 10 years, contributing a total of $50,000. Meanwhile, Joey starts later at age 35 and contributes diligently for 30 years, investing a total of $150,000. With compounding, Rachel’s savings can grow up to approximately $525,000 by age 65, while Joey’s account grows to only around $472,000, despite him contributing thrice as much as her. Rachel’s advantage is solely driven by her early start compared to Joey, allowing compounding to do its work.
From this example, it’s clear that time enhances returns. The earlier you begin investing, the more compounding can multiply your returns. Conversely, even a few years’ delay can drastically reduce your long-term growth. You should also highlight that in the example above, Rachel needed significantly less capital than Joey to gain more than him by age 65. Start investing as soon as you can and let time do the rest with compounding.
2. Time Mitigates Risk And Volatility
Speaking of investing, you’ve also probably heard of the rule “buy low, sell high,” a strategy known as timing the market. You take advantage of market fluctuations to buy assets while their prices are low and wait for the right time to sell and reap the rewards. But while it seems simple enough and there are stories of investors hitting it big, it is a very difficult strategy, even for professionals. Missing just a few of the market’s best-performing days can significantly reduce returns.
This is why experts suggest focusing on accumulating time in the market. Instead of timing your trades, you should focus on the long-term, stay invested, and allow the market’s natural growth trajectory to work in your favor. This helps you to not react to market volatility and avoid panic selling, because while short-term fluctuations can be unpredictable, long-term trends show that markets generally rise. For example, despite crashes in 2000, 2008, and 2020, the S&P 500 has consistently trended upward for decades.
Aside from time in the market, you should ensure that your investments are diversified across different asset classes, industries, and geographic regions. This way your portfolio is less vulnerable to fluctuations in the performance of any single investment. You may also use other risk management tools like stop-loss orders, fundamental analysis, or hedging.
3. Time Allows For Flexibility
Time is also a valuable tool for reviewing and adjusting your overall financial plan. It helps you adapt to changes in your life circumstances, such as job loss, marriage, childbirth, illness, or other unexpected events.
For example, imagine you started a financial plan at 25. At 35, you encounter a career change that reduces your income temporarily. If you’ve already spent the last 10 years building savings and investments, especially if you have a well-established emergency fund, you have a financial cushion. Additionally, with decades still ahead before retirement, you have time to adjust your contributions and get back on track. Time provides margin for error and opportunities for recovery.
Remember that financial planning is a dynamic process. Periodically review your strategies to ensure that they adequately address your current situation. You should do this at least once a year to revisit your goals, track your progress, assess your cash flow, review your investments, and make necessary adjustments. Major life events and other external factors, such as economic conditions and government regulations, may also trigger unscheduled reviews. Whatever it is, with time, you are allowed the flexibility and opportunity to adapt. Use it wisely.
4. Time Builds Habits
Like any other behavior, financial habits are formed through repetition, consistency, and discipline. Time permits you to gradually internalize the core principles of personal finance, such as budgeting, saving, debt management, and investing. What may begin as a conscious effort becomes ingrained behavior over time.
For example, expense tracking is one of the most effective strategies you can use to improve your financial situation. But it can be tedious at first. It requires attention to detail, consistent effort, and continuous self-reflection. However, as it becomes routine, it can give you valuable insight into your spending patterns and help you find opportunities for savings. In time, this simple habit gives you greater awareness and control, making it easier to adhere to a budget, prioritize savings, or payoff debt.
Time can also provide a feedback loop. As results become visible, they reinforce the behaviors that created them. This creates momentum and encourages even more disciplined action. With repetition, good financial habits become second nature that you don’t have to think about them.
5. Time Achieves Major Goals
Significant financial goals, such as retiring comfortably, purchasing a home, funding a child’s education, or launching a business, require substantial capital. Achieving them rarely happens overnight. Time provides a runway to accumulate funds gradually and systematically. By saving over a long period, the psychological and financial pressures are reduced.
Consider saving for a down payment on a house. You may need to allot three to five years for this goal. Of course, much will also depend on your current income and expenses, as well as other factors such as location, house type, and financing options. Nonetheless, having an extended timeline allows for thoughtful budgeting, investments, and adjustments to other savings goals.
Time also facilitates more intentional planning. You can research options, shop agents, get lender preapprovals, and make informed decisions. It empowers you to create a step-by-step plan and breakdown your goals into concrete and manageable monthly or annual contributions.
Final Thoughts
Time can mean money, literally. When used wisely, it compounds investment returns, mitigates risk, builds habits, and provides the flexibility necessary to achieve financial goals. Rather than taking shortcuts or seeking instant results, harness the power of consistency stretched over a longer time horizon. Remember, financial success rarely comes from brilliance alone. It stems from patience, perseverance, and planning. Time is your most valuable resource. Don’t waste it.
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