Time Value of Money

I have read various articles on time value of money. How money, if invested properly, grows over a period of time; How compound interest can make your money gallop; Why you must start saving at an early stage. Somehow none of these articles really inspire me and energize me to develop a Vision. I am not by any means underestimating the science and the rationale behind this, I strongly urge you to really understand the time-value of money. However, for me, at a personal level, the numbers do not excite me enough.

What actually energized me was the concept of ‘Financial Freedom’ – of making money work for me. Generating Pi to take care of all my needs – necessities, comforts and even luxuries. I have many interests in life. I always wanted to have the freedom to try out various things in life. To pursue alternate career options, to work on projects of my choice, to travel to different places. This is what Financial Freedom offers me.

The kind of interests that I wanted to pursue demand high level of physical and mental energy. I don’t think it would be possible, if I had thought of retiring at 65 and then doing this. I wanted to start doing this at the age of 40. I managed to reach this stage at 45. Missed the target by 5 years (mainly due to my greed which caused me to fall victim to a scam).

I want to inspire people to “Retire Young, Retire Rich”. By retirement, I don’t mean that you will not work. I mean you should not have to engage in work that no longer excites you. My definition of retirement in having the freedom to pursue your passion- doing something that energizes each and every cell of your body. It means living a rich life (Chai).

When you approach the topic of Time Value of Money with this perspective, your interest level will be at a different high. Now you will be able to internalize the concept of Ai, Pi and Chai in your life.

Money grows over time; however, will the purchasing power of money also grow. Will it beat the inflation index? This is the most important parameter of growth. That is why I advocate for Investments over Savings. Investment is a slightly complex game; it demands your time, over and above simply money. Given the freedom that you can enjoy by using the time value of money, it worthwhile for everybody to spare the time to learn more about money.

I have seen innumerable cases where young people who start earning suddenly start living beyond their means. They spend their entire current income today, forgetting to set aside part of their current income for their future (stealing from their own future). I have also seen people putting their money in “Saving” instruments that do not really increase their purchasing power. This is one reason that prompted me to start the Ai, Pi Chai blogs.

Are you also somebody who gets turned off by dry numbers? Does the idea of Financial Freedom turn you on? If yes, do leave a comment below this post.

Value & Ai

Ai– you work for money. It looks very simple, as if somebody is going to give you money for your work. Actually you are paid for the value that you deliver or rather the perceived value of what you deliver.

So what is this value? Let’s say I sell water, something that is most valuable. Nobody can survive without water. I start selling water at Rs 10 for 500 ml. My friend sets up shop right next to me and starts selling diamonds. What is the value of diamond? One can live without it. But what is the value of a diamond? Now suppose suddenly water becomes scarce and I am the only one who has a reserve of 10,000 litres of water. The next refill of water is say 3 months away. Now, what will be the value of water? In economics, the value of a commodity depends upon its demand and supply. Higher the demand, lesser the supply, the value/ price goes up. That is why value of real estate in a city/ market where there are lots of opportunities keeps going-up – demand keeps on increasing, whereas supply cannot increase.

In the Ai zone, I have to be most mindful of the value that I am bringing on the table. This factor is in my control. I have to constantly upgrade myself to ensure that the value that I am contributing is the highest possible. I should constantly be thinking of ways and means of increasing my value. I remember an advice received when I was young, doing my articleship. On one of the audits, a Purchase Executive of the company advised me “Sukhbir, in life, never run after money. Become so good that money runs after you”. I have never forgotten that advice.

Earning money is about attraction, not chasing. If you run after money, you will get tired very soon. However, if you invest time developing yourself, then by increasing your magnetism, you will start attracting money into your life. Your focus has to be to develop yourself. A gardener never runs after the butterflies. He concentrates on building a beautiful garden; butterflies are automatically attracted to his garden.

 So how to do you develop yourself? If you spend time pondering over this subject you will automatically get the reply. The development has to be holistic – intellectual, physical, social, and spiritual. If all aspects are worked upon simultaneously, your value is bound to increase.

Value addition and value multiplication are ideas that I have mentioned many times in my talks and my blogs. Addition depends totally on your own efforts. Multiplication or leverage is achieved by using other people’s money (OPM) or other people’s time (OPT) or both. Multiplication leads to higher growth. However, remember that before you take off, you have to achieve optimum ground speed. So addition comes before multiplication.

Many people have shared their stories about value with me. What’s yours? Do write in.