Maryland-based Tisa Silver, 31, (@ tisasilver) has written a concise but insightful book entitled The Time Value of Life. She packs much wisdom about the nature of life and work into just 90 pages, along with several mathematical formulae to back up her assertions.
The book, self-published in July 2009, nicely complements an older one many personal finance writers cite as having influenced them: Your Money or Your Life, by Joe Dominguez and Vicki Robin (Penguin, 1999). The central insight in that book is how money should be considered a form of life energy.
Most jobs consist of exchanging life energy for money. So, when it comes time to spending that money, we should ask ourselves if a proposed expenditure justifies the loss of life energy that money represents.
Silver goes further, reminding us money is a replaceable commodity but time is not. Hence her premise that time is more valuable. More importantly, she explains a concept that often trips people up when estimating how much money is needed for retirement: the formula of Present Value versus Future Value of Money. She defines Present Value (PV) as the amount of money you're willing to invest today or initial investment. Future value (FV)--also called Terminal Value -- is the amount of money you will have at some point in the future after making your initial investment.
If you spend today on depreciating items like luxury handbags or cars, you're failing to maximize their future value. By contrast, when you invest today on items that increase in value (usually equities) you can create value in the future. Silver concludes future value is more important because "delayed gratification is worth the sacrifice of investing today.
She then tackles the Time Value of Money and introduces variants of the concept I've not seen before, such as the book's title: The Time Value of Life. This does not refer necessarily to monetary gains, but to gains in knowledge, experience, relationships or "whatever is important enough to you to make your investment worthwhile." Note again the parallel to Robin & Dominguez's concept of life energy
In an interview, Silver says she aimed the book at teenagers, although parents often buy the book on their offspring's behalf. It was the No. 1 bestseller on time management at Amazon.comin September. "The message I'm getting from older people is they really love the book because they're old enough to appreciate the value of time as they look back on their lives." Indeed, Silver reinforces the message at the core of many personal finance books: "The earlier you start (saving and investing), the lighter the burden later in life." Or, as she writes in the chapter on Present Value: "You don't have to invest right now, but the sooner you invest, the better. By investing early, you can invest less now to reach the same goal later."
The book was conceived after Silver taught finance to junior business majors at the University of Delaware. (She later left to become a freelance financial writer). "Most of the course was based on the time value of money. I kept finding different ways to explain why it's so important, mostly examples from daily life with things they're dealing with already." She also has a sequel she's begun working on. "It's another time value idea."
Most of the numerical examples in the book are variants of a basic TVM equation: FV = PV (1 + r) raised to the power of t, or time. "R" is the rate of return expressed as a percentage.
A chapter on Rate of Return shows how returns are directly proportional to risk: Higher risks usually mean higher returns and vice versa. This relates directly to the widely publicized investment scams we've seen the past two years on both sides of the border. Here Silver is again insightful: "If an opportunity offers a large reward and requires little or no investment, something is wrong."
Her chapter on Time moves from "fast and safe" investments like certificates of deposit (the U.S. equivalent of GICs) to the "gradual and risky" world of entrepreneurship.
In the afterword, Silver concludes that "in an instance when the choice is between time and money, I hope you will give time a chance. Stop spending time and start investing it."
[Canada.com]
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