The impact of time on wealth creation
Posted Saturday, June 2 2012 at 00:00
James and June, both 30 years old, have attended a financial training course offered by their employer.
After the course, June decides to forego the daily Sh300 lunch she usually buys at the cafeteria as well as cable TV at Sh7,000 per month and put those funds in savings for retirement.
James does not make any changes to his lifestyle as he intends to be in business in the next 10 years.
As a result of her decision, June is able to save Sh13,000 each month. On a conservative estimate, at age 60, as a result of just the money saved from lunch and cable, Jane has accumulated an additional Sh17,672,180 in her nest egg.
James never started his business and only started taking investments seriously at age 45.
To catch up to the amount June will have at retirement James needs to put aside Sh54,238 every month.
The above example is one that I commonly use in my courses to illustrate the impact of time on wealth creation.
The more time you have, the more you can accumulate: invest then invest the returns from the various investments.
James intends to be in business in the next 10 years so he does nothing towards investments in the present.
Many of us are either consciously or subconsciously waiting for an unspecified deal, job, income or business so that we start creating wealth.
In the meantime, we continue to live in financial disorder and wonder why we are permanently in a state of despair.
James has an intention but does not back it up with any action or plan.
If anything, he uses this intention as an excuse not to start. June, on the other hand, identifies what she can do today and executes it.
She decides to cut out some specific expenses and save diligently every month.
Wealth is not created amidst chaos or lack of planning. A book I am currently reading states: “Your future comes one day at a time.”
What are you doing today to achieve the financial objectives you may have for yourself?
It does not matter if the numbers do not yet quite add up. What counts is that you have an action plan that you have started executing.
James can back up his intention by doing some research about the line of business he wants to start and even starting to save for that business.