Time and money are valuable weapons in the economic war going on around us. Time and money are inextricably linked. They are essentially part of the same thing – like Einstein’s space-time (see my 12/4/14 post “Wealth-Time”). Money doesn’t buy goods and services or financial security. They are purchased with precious pieces of time sold to an employer, customers or clients. Deploy those treasured assets of time and money prudently.
It is critically important to build a minimum level of wealth. Wealth is money you don’t need to spend. If you spend all your income you will be destroyed – insecure, worried, vulnerable, defeated in the economic war. Wealth is the ability to spend more than your income. But don’t spend more than your income unless you have to. Be financially defensive in this brutal economy. Self-insure continued income and support for your family, no matter what. If you’ve used time wisely to acquire wealth, you should now be secure enough to devote time towards family and other interests that are more fulfilling.
But how much is enough? The answer is your personal Inflection Point:
An inflection point is a point on a curve at which a change in the direction of the curve occurs.
The law of diminishing returns applies to both money and time (or units of labor). Look at these graphs:
Output (or utility/benefit) on the top graph increases rapidly at first but then reaches 3 inflection points. The First (A on the lower chart) is when the marginal product (or utility) begins to decline. B is when the average product begins to decline. And C is when output levels off.
This applies to any professional or personal endeavor, pursuit or project (whether financial, intellectual or physical). The initial effort produces rapid returns, which then slow and level off. It applies to wealth accumulation. The utility and security of keeping your family in the Mass Affluent demographic is an Inflection Point. Actually one of 3 (L1, L2 or L3) depending on you risk tolerance/comfort level. Once your personal wealth inflection point is attained and locked down with an estate plan, the additional security and usefulness of added millions of dollars of net worth diminishes. Blind ambition drives people to pursue wealth purposely, without stopping to think about how much is enough. Consider how to utilize the much more valuable resource facet – time. More on allocating those precious units of time in next week’s Estate Planning War Chest.