July 01, 2006
The Time Value of Money: What It Is & Why You Should Know It
Time is the most important asset you have. How you invest it determines the quality of your life and the impact you make. In terms of time given, we're all relatively equal. There are 24 hours in a day, 7 days in a week, and 365 days in a year for everybody. What makes us different is how we invest that time!
Therefore, having a clear understanding of the value of your time is extremely important. Three consistent mistakes that I see among young entrepreneurs (including myself) are:
- Not taking into account when you will be paid.
- Not taking into account the riskiness of the opportunities you're pursuing.
- Either undervaluing or not including time in your cost projections.
Below are the results you can expect if you make the mistakes above:
- You may create a business that isn't scalable. Because you don't value your time properly, you undercharge the customer or you go into a business that isn't scalable. As a result, if you're not paying yourself or if your paying yourself less than minimum wage, you will not have enough moeny to pay employees and still be profitable.
- You will allocate your time ineffectively. Being someone who is creative, you see new opportunities all the time. If you do not understand the value of your time, you may go after opportunities that aren't worth your time. Understanding the value of your time, will also help you become more focused as it will be a filter for you to qualify new opportunities.
To understand what the time value of money means in your life, download the powerpoint presentation I created.
Disclaimer: I'm not an an expert in this area, so please point out any errors you notice.
Posted at July 1, 2006 02:14 PM
Hey Michael,
Great post with some interesting insights. Practical: There is a type with an S on the last page ;). Next to that I think it might be interesting to include another aspect that you yourself also stress in your book. If you get paid only once for your work your cheating yourself out of half the return. I'm choosing now to engage in some less-than very profitable ventures. On the other hand, the experience and network I build from that are humongous. It would be interesting to see how your model could be adapted to include those points. One lesson properly learned today could easily be worth millions down the line. But how to include it. Put a current dollar value on it? Put a future dollar value on it. If I can spend one day today learning a lesson which will cast my business a 1000 dollars, and a day, which saves me 50.000 in the future then the return on investment is quite significant.
Anyway, just of my ponderings, again great text, and I love your blog!
Tijl
Amen to that. All other resources are ultimately indefinate, but time, time is 100% limited and for every second spent there is no refund, no recourse and no second chance. With time, you can have everything else required to get the business going, but your time is like your startup capital. Spend it unwisely and ultimately your venture will fail. as Terry Allen says:
"Don't shoot the rabbits when you are on an elephant hunt".
