Blogs > Your Money

Dave Patterson and Erin Preston, a father-daughter team of Certified Financial Planner® licensees, provide thoughts and suggestions on a broad collection of personal finance topics.  Information provided in this BLOG is intended to be of a general nature and may not be appropriate for all situations.  Readers should consult with their own financial advisors before relying on any information contained herein.

Sunday, January 10, 2010

Don’t Forget That Time is Money

While many people have the skills and motivation to manage their own money, they are probably in the minority. Normally, our clients come to us either because they need our expertise or they don’t have the time or desire to manage their own financial affairs. Nevertheless, we are amazed when clients meet with us, express an interest in having us help them and then put off gathering their financial information so that we can prepare a customized proposal for their review.

There are numerous reasons people do this. In a recent blog post titled “Getting Over the Financial Advisor Hurdles”, we noted that: “Some people are ashamed of the state of their financial affairs or feel guilty about letting their finances deteriorate. They are embarrassed to share the details of their situation with a financial advisor.” They also worry about getting bad advice or are unsure of how to evaluate an advisor. And, in some cases, the concern about the cost stops them in their tracks even before receiving a specific quote. The aforementioned blog post addressed those concerns.

What we want to focus on here is the cost of doing nothing or putting off getting help. Time is money and letting your financial affairs continue to be poorly managed can cost you significantly.

Financial advisors often point to the “Rule of 72”. Simply stated, the “Rule of 72” can be used to estimate how long it will take to double your money if it’s invested at a particular rate of return. Let’s suppose, for example, that you can invest your money at 6% annually. Dividing 72 by 6 yields 12, which according to the Rule of 72 means that you can roughly double your money in 12 years if it is invested at 6%, annually. If you have 36 years until retirement, every dollar you invest now that earns 6% annually will be worth eight times as much upon retirement, since it will double in value three times in 36 years. So a thousand dollars invested now at six percent will be worth $8,000, roughly, in 36 years.

As we pointed out in our past blog, a good advisor can significantly reduce taxes or expenses on one’s portfolio. They can often help you reduce insurance premiums and increase portfolio returns while minimizing risk. They can help you better manage spending and increase your savings. They can help you avoid the emotional hang-ups that so often damage investment returns: holding on to winners too long, holding on to losers too long, letting taxes get in the way of wise investment decisions, chasing the “hot” asset classes, and so on.

The bottom line is that if you know you need help, take action now to get help. Every day you delay will cost you money. You work hard to earn your money. Shouldn’t you make an investment in managing what you have? To get you started, we like to quote Aristotle, who once said: “Well begun is half done.” Get started now and you’ll be well on your way to letting time work its magic.


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