The Power Of An Hour: Four Ways Wealthy Investors Increase The Return On Their Time
Published on Forbes on August 12, 2019. For the full article, click here.
What is the most valuable resource in existence?
Depending on who you ask, you will get a vast range of answers to this question: “Gold! Real estate! Water! Knowledge!” It’s a fun topic to think about, but no joking matter. Some of you may already know the answer but haven’t taken steps to connect its meaning to your own investing habits. Let’s increase your chances of investing success and explore the topic together.
The answer can be seen in the actions of an elite group of investors: the ultra-wealthy. When we pay close attention to their habits, a pattern emerges. The wealthiest people in the world view time as their most precious resource and a powerful ally. It is precious because it can not be replenished. No amount of effort or capital can generate a new day, hour, minute or even second. Time marches on, unstoppable and irreplaceable.
The great news for the rest of us is that the habits deployed by wealthy investors can be adopted by anyone. They sound simple on paper, but in practice, they can change your life.
Here are four strategies of the wealthy that you can implement today:
1. Protect your time.
How often do you say no when someone asks you to attend a meeting, take on a new project at work, run an errand or complete a task? Do you blindly agree to it without thinking first? Or do you reflect, and then respond?
Your time is valuable. It warrants your protection. When you say yes to most things, you are treating your time like it is free. If you have some established goals for your life, they can serve as a helpful compass for these in-the-moment decisions.
Next time you receive a request for your time, ask yourself, “Does this get me closer to my goal?” If you need more time to think about it or are not sure how to respond, it’s reasonable to reply, “I’ll get back to you.” This small tweak in your conversation can save you from taking on a 12-week project that doesn’t align with your top priorities.
To learn more about strategies for protecting your time, I recommend the book Essentialism.
2. Invest as early as possible.
Play offense, early and often. When you study the track records of the wealthy (e.g., Warren Buffett) and the impact of compounded returns, it paints a picture that early birds get the most wealth. Personally, if I could wind back the clock 15 years earlier, I would start investing in real estate much earlier in life. As we sit here in 2019, I can think of dozens of reasons why it’s a great time to start real estate investing. Let’s examine a couple “what if?” scenarios through a retroactive lens to appreciate the impact of a longer time horizon on some smart real estate investments:
• Example 1: Rental property ownership. If you financed a single-family rental purchase, getting a 15-year head start could mean that you are now approaching the most advantageous years of your mortgage paydown, focused more heavily on principal rather than interest. Your equity buildup is accelerating. That’s real wealth accumulation, resulting from paydown over time.
• Example 2: Commercial real estate syndication. If you invested as a limited partner in commercial real estate syndications, you could have generated an 18%+ return on your capital (or more) over a five-year period and rolled your capital into more syndications. If I had enacted that strategy years ago, instead of socking away cash in a corporate 401(k), I could have created enough cash flow to cover my living expenses by now.
Regardless of market cycle timing, deals exist. They are there for the taking, for those willing to put the work in.
3. Ignore mainstream financial advice.
Socking away cash in a savings account with 1%-2.5% returns cannot protect the value of your capital. The combination of inflation and time will chip away at its value. If you use a retirement calculator to run the numbers on what it takes to fund your retirement, you could be in for a rude awakening.
Mainstream financial gurus claim that if you tap the “amazing power of compounding” and invest in your 401(k), you are using the power of time to set up yourself a comfortable retirement.
What they are not telling you is that you can free up your time decades before you are retirement age. To do this, you need to invest for cash flow and stop putting your hard-earned capital into mutual funds for capital gains. You can’t pay your living expenses now with passive income from investments if you continue tying up your capital in Wall Street retirement accounts.
4. Outsource low-value tasks.
What is the dollar value of your hour? Run the numbers: Take all forms of income you receive throughout the year, and break it down all the way to hourly.
Once you've quantified the value of your time in a financial sense, analyze your last month, and look for opportunities to outsource tasks that cost less than your hourly value. Some examples might be bookkeeping, accounting, marketing operations and administrative tasks. This same approach can be applied to tasks in your personal life, such as shopping, yard work and cleaning.
A mindset shift is required before you can embrace this strategy. If you find yourself thinking it is “too expensive” to pay for these tasks, you are likely undervaluing your time.
Your time has come, reader: Run the numbers. Assign a monetary value to your time. Let that number serve as a benchmark, a catalyst for change, a compass to guide you when you lose focus on your journey to financial freedom. Time can serve as either your ally or your enemy. Don’t wait. Take action now.