Time Value of Money

Many don't understand "Time Value of Money" (TVM), but it is simple...it is the value of your time. Some homeowners would rather pay a premium in home maintenance to gain more a little more time for recreation. Other home owners would not dream of spending a dime on something as simple as mowing the yard.

Time Value of Money = I'll pay you for my free time

My favorite example of this: My wife and I were flipping a home. We bought a 1900Sq/ft house with a 1000Sq/ft unfinished basement. We were simply going to spruce it up, and finish out the basement w/ family room and 2 additional bedrooms. Meanwhile, our neighbor had the same idea and more or less the same house of the same age, with a 1 year head start. He was his own contractor, and was determined to turn a profit. He went with the cheapest subs and product, and did lots of the work himself. He rented heavy equipment, bought every tool and had a crew from the local temp agency. He worked on his house the whole time I lived there, and was forced to do many of the improvements twice, due to poor craftsmanship or incompleat sub work.

Me? I found the best remodeling contractor I could. The Contractor had a 12 month wait, and it was worth it. He was turn-key with ideas and perfection. Even allowed me to paint and tile, which I enjoy. He was in and out in 3 weeks, and I wrote him a big check. House was listed with a realtor and we sold it 26 months to the day after we purchased it, 3 months after we started our remodel.

My neighbor could not believe the money I spent on the contractor or the percentage to the realtor.

When we moved out, he was still working on the house, and guess what.... the housing bubble popped. He is probably still living in it, with a "for sale by owner" sign in his yard.

Did I leave money on the table? Yep. Did I leave the table with money? YEP!

Moral of the story: Not all bargains are time savers, not all time savers are worth the cost.

My question to you: What other places in your life are draining your time or money?

The coached investor is probably losing the TVM battle when it comes to oil changes or yard work... I can't help you with that, and I do both myself. I can coach you to understand the Time Value of Money and know that your retirement account is operating efficiently with written objectives.

Evan Morrison
Investor Coach
Waco TX