Today we are going to look at a key component to building wealth that is often overlooked. 

I’m going to share this in one sentence, and then I’ll explain some important caveats to what I’m about to say. 

Check this out. 

The most overlooked component of building wealth is understanding the compounding interest effect of some activities, and allowing that understanding to then dictate how you spend your most valuable resource: time. 

Time is money, we’ve all heard that, but it’s more profound than that. How we spend our time either benefits us or costs us, and sometimes it costs us for the benefit of others. In addition, the degree to which an activity benefits us varies and often has a compounding interest effect. 

So far you might be scratching your head. Let’s get a little more specific. Do you invest your time like you do your money?

If you were to ask one of our financial advisors, they’d probably tell you a prudent financial strategy in life is to:

  • Start investing early to take advantage of compounding interest 
  • Save as much as you need to meet your financial goals
  • Diversify in order to manage risk
  • Identify good investment opportunities. 

What is interesting to me is to replace “a prudent financial strategy” with “a prudent time strategy” and look at those same bullet points again through this lens. 

A prudent time strategy is to:

  • Start investing early to take advantage of compounding interest

Believe it or not, time also has a compounding interest effect. The way you invest your time will pay dividends down the road if you are investing it in productive ways. Author Donald Miller often says we need to view time through the viewpoint of its economic value. Time is money, but some ways we use our time are more profitable than other ways. 

For example, as I sit here and write this blog, I think of the economic value it could bring to our company. It will reach you, the person reading this, and it will hopefully provide value to you. Perhaps the value you receive will be useful in your life journey and you will think of Summit Wealth Group the next time you need our services. Now imagine that 1,000 people read this over the next year and it has the same effect. What if those 1,000 people then each refer their friend or family member to Summit, and that 1,000 becomes 2,000. 

Maybe this blog post gets picked up by Google as a top search result, or maybe an editor at Yahoo Finance sees it and wants to use it in an upcoming article (which has happened before). Then, all of the sudden, the blog is viewed by tens of thousands!

That’s wishful thinking for one blog post. The point is, the way I’m spending my time right now will lead to more profitability than. say, using that same time to dust the windows in my office. 

This is a more economically valuable use of my time that could compound over time.

  • Save as much as you need to meet your financial goals

When it comes to saving money, we do so with goals in mind. Are you saving for an upcoming trip? A new home? Retirement? Education? Without a goal in mind, it can seem pretty pointless to save, which then can easily cause us to simply spend whatever we make. 

With time, we can’t “save it” in a jar (wouldn’t that be nice?!). However, by being intentional about the ways we use it, we can almost magically create more of it. And that also comes from having a goal in mind. Similar to saving money for a goal, if you set aside time in your calendar to achieve a goal, you will be more likely to do it. If you do not have a goal in mind, you will simply spend time in a whatever-feels-right-in-the-moment kind of way. 

  • Diversify to manage risk

In a financial investment strategy, we often talk about diversification being a prudent strategy. Similarly, it is good to view the economic value of time in a diversified way as well. Some things you will spend your time on will not pan out and will not be economically valuable.

Let’s go back to me writing this blog. Maybe no one will read it! Maybe it will flop and the hours I spent on writing it were a waste. 

That’s why I don’t spend all my work hours on blogging. I think it will be a profitable use of my time, but there are other things as well that I can do that I think will be profitable. Without knowing for sure, I should diversify my time among several things thereby reducing the risk that one activity could flop and I’ve rendered myself useless. 

There’s actually a lot of risk involved if I only spend my time on one activity during my work hours. What if I spent my entire 40 hour work week on blog posts, and they don’t receive any views? What value am I to my company if all I do is create content that falls on deaf ears?

Just like investing money, what we think might be profitable is not always profitable. This is why we diversify to reduce the risk. 

One last thing on this point. You don’t hear about this often, but did you know it is actually possible to OVER-diversify in your investment portfolio? You see, for every investment you add to your portfolio, you are reducing risk, but you are also reducing the expected return. There comes a point where you have so many investments that the marginal loss of expected return is actually greater than the marginal benefit of reduced risk. That’s called over-diversification. 

You can over-diversify your time as well! You need to give yourself enough time to build momentum in a given activity before moving on to something else. 

  • Identify good investment opportunities.

We’ve saved the best for last. When you view your time as an economic value, you begin to look for good investment opportunities, and you begin avoiding the activities you know have no economic value. 

That can be trickier than you think though. Playing a round of golf might not be a great economic use of your time, but that doesn’t mean you wouldn’t play it. Some things we do simply because the value it provides is not ever going to be of monetary value, but it brings some other sort of value. Golf gives us relaxation (well, depending on the day for me!). It gives us a chance to get outdoors, to recharge, to build relationships. There is value there even if it doesn’t lead to an economic benefit for us. 

Volunteering our time at a food pantry has value to those around us and to the joy and satisfaction that a charitable spirit can bring us, but probably no economic value. 

When you think through your calendar, set aside time that you label as economically valuable time. You are thinking through which activities you can do right now that you believe will provide the most economic value to you down the road. What does that look like? Developing a skill? Developing a business or side hustle? Researching opportunities? Building business relationships? What activities do you do that create the most momentum? 

When you see time in terms of the economic value of your activities, you start to see things differently. You start to plan your schedule differently. Your intentions change. Your priorities change.

You start to live... differently.