During your working life, you are turning your time into money. You should have the parallel goal of turning that money back into time for you. Work begets money; money begets time.
The time you have ahead of you when you are born is a gift from the future. The circumstances into which you are born will help determine your life choices, and help determine to a fair degree how easy or hard it will be financially, but for most it will be a case of working for what you need and want.
Let’s say during your working life, say 20 years of age to 70 years old, you can work for forty hours per week, five days per week for fifty years at an hourly rate, in today’s dollars, of $50. That is, during that 50 years, you will swap 100,000 hours for a gross amount before tax of $5,000,000. It’s like you have a warehouse stuffed full with 100,000 hours.
It’s up to you how you use those hours. That is uncertain at the beginning, because your working life extends a long way out. The only certainty is that for every available working hour, one of those hours will disappear; it will perish, whether you use it or not. People in the service industries will tell you that time perishes faster than a lettuce on a hot day.
You can add to those hours you’ve been given by starting work earlier than 20 years of age, or you can extend by working past 70. The former is a choice, sometimes a necessity; the latter is usually a necessity. You also have a choice about having to work all those hours, especially the ones at the back of the warehouse set aside for work later in your working life.
Make Your Money Take Over
The choice, or the alternative to working each and every of those 100,000 hours, labouring for each hour to swap it for money, is to realise that you can make the money you earn work for you. More correctly, you can make the money you earn, but don’t need, do the work for you, and as it works harder – effectively self-replicating as it earns interest, and then earns interest on that interest – you don’t need to work as hard, if you don’t want to. Or for as long, if you don’t want to. Your money will take over the work, and give you the time. The clue is in the phrase: “how you use the money”. Just spending money is easy; “using” what you don’t need is the clever part, and knowing and maximising what you don’t need is cleverer still.
The first thing financial planners need to know, after your life goals, is how much money you have available and can set aside from future pay packets. Because it’s that money that will be used to finance your plan to achieve your life goals for your family and yourself. To be brutal, the money is more important than the plan, because if there’s no money, the plan, with all its milestones of holidays, skills, education and memories, as well as a secure retirement, is a dream that will stay that way, and you and your warehouse hours will be your life’s only source of income.
A Budget to Feed the Plan
To make that dream come true, you need that plan. To make the plan work, you need money. To identify the money that can feed the plan, you need a budget, a challenging but achievable budget. A good budget will let you look ahead, as far as you want, to work out in detail what you’ll need, leaving what you don’t need to be set aside to feed the plan. It will also help you learn to live on what is left if you choose to feed the plan first.
The earlier you do that, namely implement a budget so you can feed the plan, the closer you are to having your money work for you – actually working alongside you during your working life, but not retiring when you do.
And the earlier you do it, the more likely it is you’ll finish your working life with unneeded working hours left in the warehouse that can be used for whatever you want.