How To Harness Time

Our family recently watched Newsies, first the recording of the stage musical, then the movie musical version. It’s basically the story of newspaper-hawking kids (when child labor was commonplace) striking against the powerful New York newspaper publishers for better pay conditions at the turn of the 20th century.

I noticed a little detail in one scene in a restaurant – a chalkboard with a list of sandwiches and prices of 10 to 20 cents. I quickly computed that in the course of 100 years or so, sandwiches have become about 100 times more expensive, thanks to the power of time and compounding.

Running some compound interest calculations later, I determined that a $0.20 sandwich in 1900 would be a $5.14 sandwich in 2000. And that same sandwich would cost $11.95 today, all assuming a 3.25% inflation rate that compounds monthly.

Sometimes it’s an example like that which drives home an important lived truth in our modern market economy: On average, prices will always go up.

What does this mean for money management?

Simple: Buy assets, not things.

Throughout our varying seasons of life, we can either be paying interest, compounding over time, or we can be earning it. This happens in the form of paying interest on debts (like continually refinancing mortgages and never getting to the end) and by simply living in an economy where inflation is built into the model.

The reason we must invest our money instead of piling it up in a non-interest bearing checking account, or under the mattress, is that we must ensure our own saved dollars are outpacing this inescapable compounding of inflation over time.

Indeed, within the few decades of your working years, you must put aside enough, at a high enough earning rate, that you can build a big enough pile of cash to live off of for the non-working decades ahead (while inflation keeps running).

Meanwhile, we must buy the consumables of life – groceries, gas, clothing, vehicles – repeatedly throughout our lives. Those are things that lose value (or are consumed entirely, like those sandwiches) and must be bought again at a higher price in the future.

But assets are those durable things that will stick around, that will gain value, pay you interest, and therefore provide for you in the long run, despite rising prices on all the other stuff of life. Real estate, gold, businesses, market investments, high-yield savings or certificates of deposit, government bonds, and more.

So, are you building wealth or being drained?

Do you have more appreciating assets or more depreciating things?

Be mindful of shifting your money towards assets to harness the power of time to work for, instead of against, you and create a truly secure financial future.