Power of Time for Building Wealth from Thrift

One recurring theme among the Wealthy is their ability to harness the Power of Time and use it to their advantage. I recall a comparative presentation promoting the benefits of compound interest. An individual who built up their capital from ages 18-28 would have more than another indivdual who invested from 29-65. It is simplistic, but the lesson is that when time is allowed to compound the gains, that will enable an investment or endowment to grow substantially.

Looking at it another way, Thrift is the practice of making good decisions by avoiding bad ones. What characterizes a bad decision? A false sense of urgency. The "take it or leave it" mentality. There is a reason why pressure sales tactics create a sense that delaying the decision is the worst possible alternative.

Consider the discounts before and after Dec. 25. Prior to Christmas, we are expected to believe that we are getting a deal until we are induced to purchase. Imagine our surprise when a mere 24-48 hours later, the same merchandise is being offered at a substantially greater discount. It is insulting to have been played for suckers.

How do we consciously make decisions that consider time. One good tactic is to measure each decision like a business; assessing the impact on the month, quarter, year, and long-term. Consider the decision to get a major home expansion (i.e hot tub, backyard pool). This would have a detrimental impact on the month as it would be a non-recurring expense. It might be evened out in the quarter, but other decisions would have to be made to sacrifice. The effect on a year and long-term would be dependent on how this changes the lifestyle, when compared with the increase of value to the property.

In contrast, imagine the decision to pursue an educational credential that would draw from short-term finances, but could potentially increase long-term income opportunities. In this sense, the time is an ally, and supports the case for the investment.

The art of Thrift - yes it is an art - involves shifting away from consumption towards wealth-creating opportunities. One decision factor is the effect of that choice over time. As more time passes, the outcomes of Thrift will be realized with increased Wealth and net worth.

Power of Remittances

In our multicultural society, one of the growing trends I have observed is the practice of Remittances. A Remittance consists of the portion of income (ranging from 10-40% of gross earnings) sent back to the home country of a migrant to support family members. At the most basic level, the money from Remittances are spent on food, shelter, clothing, and basic necessities. There are also benefits in that overall poverty is reduced, and families are encouraged to promote health and education.

I found a very good link to articles that reference many success stories of Remittances, particularly as an alternative to Foreign Direct Investment. This is an essential practice which has proven its worth and suitability for developing countries.
http://www.ime.gob.mx/investigaciones/remesas/remesas8.pdf

This is a perfect international example to show the direct relationship between Thrift and Wealth. The practices of Thrift enable the foreign employee to set aside a sizable portion of their income. In turn, this income is combined and consolidated into an amount that can be forwarded on to the people or areas in most need. One might liken this to a forced saving or an internal form of taxation.

Transferring the money from a prosperous economy to a developing economy also provides better use of capital - building wealth more quickly. The $10,000 made during a month on the oil rigs of Fort MacMurray, Alberta matches closely to the annual income of a university educated professional working in Manila, Phillipines, essentially doubling the purchasing power of a family. Imagine the opportunities if your household income was doubled by the contributions of a more fortunate and generous relative.

Remittances can work within our economy among our own culture. What would it take for us to set aside 20-30% of our income towards a capital pool to support the less fortunate within our own families. With interest rates of unsecured credit cards and payday loans approaching 30%, the better (and safer) alternative is to develop this capital independently to avoid the vicious cycle of high external debt and bankruptcy.

If we learn the lessons from our friends and neighbors in other lands, prosperity will come from their example.