You have most likely heard the expression Time is money. But do you know what it means?

Surprisingly, many people believe it to mean that if you spend many years working for a company, you'll end up with loads of money. But how many people do you know that this happened to?

Going to work will generally help you make enough money to earn a living while you're working. While this is what most of us do, that's not what Time is money means. After all, it does not say work is money. It says time is money.

I can really think of only one thing whoever said it first could have had in mind: Compound interest.

Understanding how compound interest works, and taking advantage of it, is the main difference between the rich and the poor.

Contrary to common belief, striking it rich is not a matter of luck. I mean, sure, someone occasionally wins the lottery or finds uranium on his land. But those are exceptions.

Have you noticed that children of the rich tend to be rich, while the children of the poor tend to be poor? It's not because the children of the rich inherit their parents' fortune. It's because the rich parents understand how money works and teach that understanding to their children.

Most of the poor don't understand it, so they can't teach it to their children (some do understand it, but for whatever reasons do not apply it, but, again, those are exceptions).

Strangely enough, American schools do not teach the "secret." Perhaps they are afraid that the teachers would get rich and quit teaching. Or whatever.

Ironically, as I grew up in a Communist country, we were taught these things somewhere around the third grade, but because of the Communist system it did us no good. Oh, well.

OK, now, let's get to it. We shall study the magic of the compound interest next.

Suppose you are 20 years old and have $1,000. Let's also suppose you are different from most 20-year olds, and decide not to blow that money, but put it in a bank savings account with a 3% APR, and will keep it there until you retire.

What happens to it? Using the Rule of 72, we determine that your money will double every 72 / 3 = 24 years. So, this is what you have at different ages:

Age 20: $1,000
Age 44: $2,000
Age 68: $4,000

Might as well blow it now because 48 years from now $4,000 will buy less than $1,000 buys today.

But suppose you are the thrifty type and decide not to keep the money in the bank but put it into some government securities which earn a 6% APR. That's twice the rate the bank was paying.

So, how much money will you have at age 68? Twice the interest, twice the money, right? Wrong!

Using the Rule of 72 we determine your money will double every 72 / 6 = 12 years. Here's how it will grow:

Age 20: $1,000
Age 32: $2,000
Age 44: $4,000
Age 56: $8,000
Age 68: $16,000

Ah, not twice as much money, four times as much with double the rate. Guess what, might as well blow it. The inflation rate during that time period will average 6% a year. So, $16,000 after 48 years will buy the same as $1,000 now!

But then you notice that many mutual funds average 12% annual earning over a long period of time. And 48 years is a long period of time.

12% is twice the rate of 6%, so you figure your money will grow to four times the 6% rate, right? Well, let's see.

At 12%, your money will double every 72 / 12 = 6 years (good ole' Rule of 72 again):

Age 20: $1,000
Age 26: $2,000
Age 32: $4,000
Age 38: $8,000
Age 44: $16,000
Age 50: $32,000
Age 56: $64,000
Age 62: $128,000
Age 68: $256,000

Yep, a thousand dollars invested at 12% at age 20 will turn into a quarter million by the age of 68. So, aren't you sorry you blew the money? And, of course, if you keep adding to it regularly, you'll get filthy rich much earlier. But you must start now! I am 50. I'd have to invest $32,000 to get the same result a 20-year old will get for just $1,000. Too bad I didn't move to America much younger!

Now, just for the heck of it, how much would it grow at 18%? That's 72 / 18 = 3 years to double.

Age 20: $1,000
Age 23: $2,000
Age 26: $4,000
Age 29: $8,000
Age 32: $16,000
Age 35: $32,000
Age 38: $64,000
Age 41: $128,000
Age 44: $256,000
Age 47: $512,000
Age 50: $1,024,000
Age 53: $2,048,000
Age 56: $4,096,000
Age 59: $8,192,000
Age 62: $16,384,000
Age 65: $32,768,000
Age 68: $65,536,000

Well, don't salivate just yet. 18% is not easy to obtain on a regular basis. But guess who makes that much -- credit card companies. Now, do you understand why credit card companies are so willing to extend credit to college students, and why they only demand a minimum payment every month?

Compound interest can work for you and it can work against you. The choice is yours.

In a sense that concentrates less on amazingly-selfish-yet-amazingly-effective money-acquiring techniques, it's also the motto that corporate bean-counters hammer into their underlings so that they'll think every second of time they aren't working their filthy asses off is wasting unjustified amounts of money. Therefore, when you waste time, you waste money. Notice that when you gain or waste money, time is not affected. And unless you have a time-machine shoved up your ass you can't gain time, except in a metaphorical sense. Therefore, under this postulate, the only thing that can happen is you getting screwed.
Usually this gets them (the underlings) to think that they'll start losing money if they waste time. This theory crumbles into dust when they're handed their pink slip just for being zealously productive while their Masters are playing golf and telling each other how much money they have (See The Three Corporate Lessons). It's merely corporate dogma perpetuated in order to further their progress in the never-ending pursuit of The Almighty Dollar.
After the first plane hit the World Trade Center on Tuesday, people working in the second tower, sensibly, sought to escape. As they reached the 44th floor, a man with a bullhorn told them, according to a quote in today's New York Times, "Our building is secure. You can go back to your floor. If you're a little winded, you can get a drink of water or coffee in the cafateria" Some ignored the man - one escaping worker said "I really felt like punching that guy." But many others, no doubt having had obedience and efficiency imprinted in their minds since business school, turned around and returned to work.

I am confident that the intent of the announcement was not to cause death, although it surely had that effect. Rather, the emotional trauma of seeing and feeling their sister tower shattered accidentally (as was thought at the time) was not going to be allowed to get in the way of a productive business day at the rest of the complex.

"If you really need a break, get some coffee, but then go back to work" is a refrain many of us have no doubt heard from a boss at one time or another. It's probably used in training manuals for managers who need to get more work out of their lazy workers, who, we all know, will use any excuse to get the day off from work.

If time is money then that implies that money is time. Now this is obviously false in several fashions. I could with enough money probably contrive some way to stop just about any clock in the world but I couldn't prevent a radioactive isotope from decaying. Money can't stop people from aging (yet) but it can do a lot of things to make it less apparent and less unpleasant. Money can't let you go back in time. The most important way to understand money as time is as people's time. We trade the hours of our lives for money and in a round about fashion we trade our money for other peoples time. The copper in the wires that are running electricity to the screen you are reading this on was mined by people who would probably have rather been doing other things. Same with the plastic around the screen, the electricity running through it, the development of flat screens, and the deployment of all of the technological infrastructure that got us to this moment where I make this point hundreds of years after Adam Smith first noted it.

Maybe this is a new thought to you or maybe you're confused that I think this even needs to be explained. I find this to be a useful way to think about money because it grounds big numbers in the daily grind of human existence. I haven't lived a billion dollars worth of economic value generation as measured by my pay and I'm not expecting to but I can kind of grasp at what is meant by it with some math. It's considered pretty gauche to put a price tag on a human life but you actually can't budget for a hospital without literally doing just that. If that feels aberrant to you then I'm sorry to say that it's implicitly everywhere. If you spend time working in a soup kitchen in your community you aren't using that time to campaign for online privacy. If you give to animal welfare charities then that money doesn't go to help educate children in the developing world. Time is money and money is time. They are exchanged for each other constantly. Time and effort are the basic resources for accomplishing anything. Money is the way that people incentivize others to do anything. This can be as important as a heart transplant, as frivolous as an artisan sundae, as banal as cleaning a toilet, or as transcendent as funding the greatest movie of all time. Spend your money how you see fit but please remember that somewhere in it's past or future that's somebody's late shift or on the job injury.


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