Wealth Building

Team Building – 7 Steps to Success

“We are going to build a team”. Replace the word “team” with the word “house” – or any other noun that can be built and will take more than just a few minutes – and most sensible people will want to adopt a structured approach.
Plans will be drawn up and approved. People will receive copies of the plan and efforts will be made to ensure everyone understands it. Progress will be monitored against the plan. Lessons will be learned along the way that will be used to improve the next phase. Anything less will lead at best to mediocrity and underachievement.
So why is team building so often treated in an ad hoc manner? You wouldn’t take bricks and mortar out, show them a good time and expect them to rearrange themselves into something better just because they had a nice break. So why expect a group of people to do any better?
The only answer to that question with any merit is that bricks can’t think and people can. Which sounds like management by abdication. Or perhaps management by trusting to luck. It certainly doesn’t sound like a structured approach.
So if taking people off for some fun is not team building – what is it?
Traditional away day options are team bonding exercises – and that is different. Take a group quad-biking, paint-balling etc and it will help bond the participants through a shared experience. You can even justify its use of some of the training budget if you like by claiming it has helped them develop as a team. Just don’t believe it – or you’ll be disappointed to discover that while the group is closer it is no more effective.
No – if you want to build a team rather than just bond the individuals closer, you need a structured process. You need to decide before you start what improvements you want and can realistically expect the team to achieve. Next you can decide how long it will take to achieve those results.
Often, fun remains a key objective for such a session. If it is the only one – or is only combined with a desire to get the team to become closer – organising a team bonding session is an ideal solution. If, however, your expectations are set higher than that – then you need something more structured.
So what are the key characteristics of a genuine team building session? I suggest the following 7 steps will lead to success:
1) Have definite session and longer-term goals and know how the session goals lead to the longer term ones.
2) Use an engaging and varied base activity that involves each participant in something that he or she enjoys doing.
3) Use an activity that achieves that engagement while having genuine parallels to the workplace and has relevance with the session goals.
4) Select an activity that requires the same kind of skill sets and team approaches that are needed at work – albeit one that is removed from the work itself.
5) Consider using an independent (internal or external) facilitator – to allow all levels to join in as equals and to avoid it feeling like a “sermon from above”.
6) Debrief using a predefined process that highlights the workplace parallels and allows the participants to extract their own learning rather than be preached to.
7) Use a proven mechanism to transfer the learning back to the workplace, ideally integrated within the debriefing process itself.
If none of these seem important, you are probably looking at a pure fun bonding session. Whether that is a trip to the nearest (or furthest!) bar or something that offers the group an experience that all of its members will enjoy doesn’t matter too much.
But if any of them do seem important, then I’d suggest that they all are. If one or more are missing then your team building session will be compromised. And that’s a word that sits well alongside mediocrity and underachievement.
Copyright 2005 Sandstone Limited

Alan is Managing Director of Sandstone, a leading UK team building company. He enjoys creating innovative activities that combine fun with genuine team development. In his spare time, he does voluntary work for the RNIB.

http://www.sandstone.co.uk

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Leverage Is The Only Way To Wealth

To build any serious income you have to use leverage. You accomplish this by spending your time creating and managing levers. IÂ’d bet that if you are creative enough, you could probably create a lever on anything that can provide an income. Let me explain this with several examples.

If you do not have an employee, you are not leveraging your time. Start leveraging your time in a tiny way with something that doesn’t require complex skills, like a dog walking service. But get other people to walk the dogs. You never walk the dogs, you focus on marketing and increasing the number of dogs to walk, and more walker employees. Then you hire an employee to handle the marketing and sales duties, and then you’ll have a business that runs on its own without you. You’ll have an absentee ownership model where you have the free time to start another business to leverage. You have to learn that you can’t run an empire if you are doing everything yourself. The old quote for this situation is, “The more I do, the less I accomplish.”

If you are not saving money every month, you cannot leverage your money. Start tiny, take 3% of any income into your checking account, and move it into a savings account. How are you going to work your way up into big deals, if you donÂ’t have any money to buy-in to smaller deals? There are ever larger playing fields, but saving money is necessary to get into the entry-level business game.

If you havenÂ’t converted your ability into products, you are not leveraging your skills. Start tiny with something that doesnÂ’t cost anything. Like writing an article or a song, whittle an animal figure from wood, record a speech. Any start will be helpful that gets you thinking about creating products from your skills. If you only know services, they can also be turned into products: books, tapes, software, newsletters, subscription services, etc. If you only have service skills, you can leverage them like step one above. But beyond that, you can start marketing to new market channels by developing your own proprietary products that I just mentioned.

If you don’t have business contacts, then you are not leveraging a social network. Start talking to people about what you want to accomplish; I can’t remember the source of the quote, but it is, “He who has the bigger rolodex wins.” The more entrepreneurial business people that you know, the more business opportunities you will hear about, and thus more financially successful you may become.

You can employ non-physical assets that can be leveraged. This is one area that I use a lot. For example, I have offered my credit to purchase an income property for a partner to manage, but we split the income by 50/50. You can offer your credit and be paid to co-sign on a loan. By having good credit, you have access to loans that you can use to buy investments.

When you’ve worn yourself out on those exercises, you can start figuring out how to leverage everything you have done toward what you want to do next. This is a critical phase. If you have an idea, do you start thinking like this, “I don’t know what to do, so I guess I can’t do that.” Or, do you start to think like this, “Get my rolodex, and find three people already in the industry that may be able to point me in the right direction. Then call my bank and let them know I’ll be asking for some money in the next couple weeks for a new project.”

Now, who would you bet on to make quick progress that will lead to success, and who wonÂ’t be able to move beyond their own fears and drop the idea altogether.

Article Source: http://www.articledashboard.com

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Compound Interest DoesnÂ’t Add Much To Your Wealth

The biggest gripe that I have with a few famous financial planners is their myth and awe of compound interest. They say, “compound interest is the 8th Wonder of the World according to Einstein, and will make you a million for your retirement if you’d only skip a few trips to your local coffee shop!!” In my opinion, compounding your return on investment is a tiny factor in wealth building compared to how much and how often you save money.

Growth charts used by the people struck by compounding ignore all forms of taxation, fees, commissions, inflation, and then misleadingly uses an average return of 10-12%. LetÂ’s start with the average stock market return of 10.7% This return rate is the most frequently published number to reflect a stock market average. There are many problems with market averages, but the 10.7% is not any kind of accurate annual compounded growth rate. As an example, if the stock market has a loss of 10% one year, and a 20% gain the next year, these zealots say that the average return for these two years is +5% (+.2-.1)/2). This is a mathematical failure to add. The correct return is only 3.9%, and again, this doesnÂ’t include fees, commissions, taxes and inflation. How are you going to compound your money when the stock market starts one of its frequent 5 year droughts of moving down and sideways (Â’73, Â’81, Â’87, Â’00). The after-inflation Dow Jones Industrial Average annual return for the last 55 years is only 4.8%; plug that little number into your calculator for 10 years and see how many Rolls-Royces you can buy.

Your growing portfolio will either be in a taxable account (knock another 25% off of your annual compounded growth rate for taxes) or in a qualified retirement account. The zealots talk about qualified accounts like everyone can have them, but there are mazes of rules for who can qualify for certain programs, how much they can invest, and even a ceiling to how much can be put in them. Sooner or later every dime of these accounts will be taxed as well. And when the baby-boomers start emptying the governmentÂ’s social security account in 2014, tax rates on these retirement accounts are not going to remain low. Politicians will take the easy way out and simply tax these retirement accounts to make up any deficit. The point is this: when money is in a retirement account, it isnÂ’t yours until the government taxes it and releases it to you.

If you start playing around with realistic compound rates, the serious increase in earnings doesnÂ’t start until after 50 years. So unless you are a 4 year-old with $50,000 in the bank and have the discipline to never spend it, even the concept of compounding is fairly irrelevant for your financial future. Today, half of the 50 year-olds in the U.S. do not have $50,000 in retirement assets. Even skilled investors are unlikely to build that into a tidy $2,000,000 by the time they turn 65.

The compounding that pays the most is the addition to your savings over time and investing skill. If you don’t continually add to your accounts, they can not add up to much; “No big money in = No big money out.” And if you don’t continually accumulate investing skill and knowledge, you won’t be able to keep your money growing faster than inflation is destroying it. Please note that there are no books titled “How To Get Wealthy By Putting Some Money Under A Mattress.” Your money has to be invested and earning interest above the inflation rate or you are getting poorer.

Article Source: http://www.articledashboard.com

investing.real-solution-center.com

In Sickness and in Wealth

For Starters

When asked to name an effective way of obtaining wealth, a common answer is: “Invest”. What is the problem with this answer? Well, the majority of respondents have very little or no money in their savings account. I see the beginning of wealth building in a different light. A saying that almost everyone knows but nearly no one applies is: “A penny saved is a penny earned”. In today’s culture it is definitely much easier to spend money than it is to save it. The average American is exposed to 247 advertisements in one day! Less than 5% of Americans have at least $3000 in savings and no debt. It is no wonder that most consumers struggle with saving money or grasping the concept of building wealth. We are mentally flogged with television and radio commercials, newspaper and magazine ads, billboards, signs, posters and even conversations. Whatever the method, it all serves one main purpose – to take your money and make it theirs.

Unveiling the Mystery

So with all those statistics and all that advertising, how in the world is it possible to build wealth? Well consider yourself ahead of the game already. By reading this article you are opening your mind to ideas and concepts which could help you to begin the process which is more than can be said for most people out there. A house starts with a single brick and the same is true with wealth building. You have to start with what you can and keep adding to it.
Why not jump in to stocks, mutual funds or other investments right off the bat? Life will continue to happen whether you plan for it or not. So plan for it. You must start with a lump sum of money in your savings account which has been referred to as an “emergency savings”. A good figure for this is $1000. You MUST pay your savings first, before anything else. If you do not, your savings will not grow (or it may not happen at all). This extra money will act as a soft landing for any financial falls that can and will occur while you pay down other debts that are road blocking your way to building wealth. You must realize though; this money is first priority but can not be touched – ONLY for emergencies. By following these 2 steps:
1) Stocking up your savings with $1,000 and then 2) Eliminating extra debts (with great fervor), you will prepare yourself for a much easier road to building wealth.

Making it Happen

You have to take action now or this whole savings thing will not happen. First, get a savings account. If you have one, find out what the interest rate is. Many have something like 0.25% to 1% (WHOOPEE!). Remember that you are not trying to make all your money in interest right now but since the money is going to sit you may as well look around. It is possible to land up to a 3-5% interest rate. Another option is a money market account to get a good rate although restrictions sometimes apply for things like early withdrawal fees and keeping a minimum amount in the account at all times. Secondly, as I stated earlier, take your savings off the top on payday. You have to make a painful change as well though. You may have to sacrifice some things to get that initial $1,000. This could mean no eating out or temporarily cutting out an expensive hobby. You also might want to try changing your phone company or downgrading your cable package. I hate this next idea but it is for a good cause: Drop your credit card payments below the minimum (JUST FOR NOW). Anyway, you get the idea. Cut some here – cut some there. Now, take all the figures you cut and add them together. This is what you will put in to your savings account until you reach $1,000. See, when the average person feels like they are getting ahead or even staying even, a setback occurs and sends everything spiraling downward. This is the hard part of building wealth and it is just the beginning (the first brick). However, without this extra money in savings you will tread water until you eventually drown, so stop thinking about it and start acting on it today.

The next step is paying off your debts quickly. An article which discusses this in detail is “Beating Debt with a Stick” and can be found at http://www.cleancreditonline.com/beating_debt.html.

Article Source: http://www.articledashboard.com

Tom Justice is the webmaster for Clean Credit Online and does all the designing, marketing, SEO and maintenance for the site. He has a passion for personal finance and how the economy and consumers are affected by money. To see how you can use Clean Credit Online to help with your personal finances please visit www.cleancreditonline.com
“In Sickness and in Wealth” – © (2005) Reprinting is allowed assuming all content is left the same.

Sound Wealth Building Tactics

Have you noticed that everyone wants to be rich, but few people seem to want to build wealth the old fashioned way: step by step? If you have tried the “lottery method” and it hasn’t worked out, read on for some tips on how you can build wealth for a better future.

Save Sooner, Rather Than Later. Attention, procrastinators: listen up! One thing you donÂ’t want to put off is saving for the future. The earlier you save in life, the more you will have later in life. Thanks to compound interest, the little bit of money you save as a 25 year old can become a lot of money by the time you are 60. Even if other responsibilities crowd out your personal saving plan [i.e., buying a house, expenses for the kids, etc.] you can step up your savings in your 40s and 50s and still come away with a decent nest egg.

Discard Your Debt. Before starting a wealth building plan, get rid of all of your unsecured debt [credit cards] and work toward paying off car loans and other personal loans. If you donÂ’t attack your debt, the interest you owe on your debt could effectively cancel out your savings. Better to get rid of your debt faster, than start building wealth.

Rainy Day Funds. LifeÂ’s little emergencies [as well as big ones] can cause you to plunge into debt faster than you can even imagine. Set aside 3 to 6 months of your annual salary in a special account and only draw upon the funds in an absolute emergency. If you think youÂ’d be tempted to plunder the fund, establish an account with an online institution such as ING DIRECT to make it difficult to get instant access to your monies.

You Get Paid First. If your employer has a retirement plan such as a 401(k) or 403(b), join up and set a realistic amount to invest. The funds will come out before you even see your pay stub, therefore the “loss” of discretionary earnings will be less obvious to you. Increase your contribution if you can, especially if your company matches your contribution [consider their match to be “free money”].

Find the Right Mortgage. If you plan on living in your residence for a short amount of time, then choose a variable rate mortgage as your rate will be lower than with a fixed rate loan. Use the monies saved with a variable rate mortgage to reduce your mortgage faster; refinance your residence if interest rates begin to surge.

Asset Protection. Your robust portfolio can evaporate swiftly if you are not suitably insured. Make certain that each of your homeowner, life, health, dental, and disability insurance coverage plans are sufficient to meet your needs. A lone legal ruling against you can wipe out your assets in short order.

Quick riches may come to a few, but most wealth is generated through careful planning and through the efficient managing of your resources. You can properly prepare for the days ahead by implementing these proven wealth building tactics right away.

Article Source: http://www.articledashboard.com

Copyright 2006 – For additional information regarding Matt Keegan, The Article Writer, please visit his blog for wit, quips, and freelance writing tips.

Understanding The Three Different Types of Income

Part of learning to become financially free is to begin to understand that there are three different types of income. They are: capital gains, passive income, and earned income. They are the three types of ways to make money, and are very easy to understand.

Capital Gains – When you buy a stock, and sell it for a higher price, you have made a capital gain. If you buy a house and then later sell it for a profit, you have made a capital gain. If you buy an antique at a low price and then sell it for a nice profit, you have made a capital gain. Capital gains are not passive income. They are a one-time payment that you receive from an investment because your investment has increased in value. Investing for Capital Gains is great because you can keep your money moving, instead of just letting it sit in the bank. The government loves to tax capital gains, especially if you bought and sold your investment in less than one year. Lets say you buy a stock, and the stock doubles in price during the week so you decide to sell it. You’ve made a nice capital gain, but the government could take as much as 35% on that capital gain, depending where you are in the income-tax bracket. If you hold onto your investment for a year or more, the government rewards you with a more favorable capital gains tax rate.

Passive Income – Passive income is payments that you receive from the assets you have created. These payments usually come monthly, and require little or no work for you to receive them. Some types of assets that produce passive income are rental properties, dividend stocks, and businesses. Assets that produce passive income continue to do so until the asset is liquidated (sold). Passive income is what makes a person rich. If a person has more than enough passive income to cover his or her expenses, that person is rich.

Earned Income – Earned income is the primary source of income for most American’s today. Any type of job that pays an hourly wage, pays earned income. People who rely only on earned income, pay the most taxes. Federal, State, Unemployment, Social Security, and Medicare taxes are all deducted from a persons paycheck. With passive income and capital gains, the types of taxes you pay (if you have to pay any at all) depend on your investment. Earned income is not necessarily a bad thing. Having a job or career is a great way to earn the capital required in order to create assets.

Almost everyone who starts his or her own journey to financial freedom begins with earned income. Relying solely on earned income should be temporary. In America today, many people rely on earned income alone, and saving most their earned income for many years until they retire. The path to financial freedom requires making the transition from relying on earned income, to passive income

Article Source: http://www.articledashboard.com

Michael Press is an investor and teenage entrepreneur. He currently owns and operates www.passiveincomeinfo.com and www.promoteyourarticles.com.

Expanding Investments Lead To Living In Style

Everyone secretly desires to be the ‘Rich and Famous’, whether it is on the local, national or worldwide scene. We spend our lives chasing this desire. We strive to live in a spacious home in an affluent neighborhood decorated by a professional interior designer. We enroll our children in prestigious private or public schools to acquaint ourselves with the finer things in life. We join social clubs to have access to the mover and shakers in the world. We adorn our bodies with the best jewelry, clothes and accessories that money can buy clubs outfitted in designer clothes We, even, jetset amongst the wealthy at exotic locations around the world.

Yet we miss the basic concept that makes the ‘Rich and Famous’ who they are. They are the rich and famous as these individuals live a life where they consciously map out their life’s purpose and direction. They set out to achieve that purpose within a profitable career whether it is in sports, showbiz, business or medicine. Consequently, they have large investment and bank accounts. Their accumulation of assets—cash and real estate— allows them to live a care free life of peace and harmony. They are able to accumulate these assets as they do not pay full price for their designer products, whether it is cars, clothes, houses or jewelry. They seek near wholesale price for every luxurious purchase they make. They buy STRATEGICALLY. We do not as we pay full retail price for these same status symbols to be considered the ‘Rich and Famous.’ Since our real desire is to escape depression, stress and anxiety by living a carefree life like the ‘Rich and Famous’ we should seek to BUY STRATEGICALLY.

LIVING IN STYLE is an attitude of success. A mindset of peaceful harmonious living fueled by financial accumulation. Living In Style is a philosophy of refining oneÂ’s personality, lifestyle and culture to fit their life purpose. This website is dedicated to those individuals who have chosen to pursue this refinement every day, yet desire to be surrounded by luxurious items.

Seek that carefree life. Seek financial accumulation.

Article Source: http://www.articledashboard.com

Ida B. Byrd-Hill is the President of Uplift Inc.and www.livinginstyleonline.com. She was the President of The Harvard Group Wealth Management L.L.C. for 10 years. She created investment portfolios, insurance plans and residential/ commercial financing. She has served as guest columnist for the Michigan Front Page for 2 years and a speaker for the Better Investing television show hosted by David Chilton, author of The Wealthy Barber.

Rich or Poor – Get the Knowledge

Most people work hard all their lives only to “retire” poor then try to live off meagre savings or a small (rapidly disappearing) Government pension. They are forced to live out their twilight years struggling with constant money problems. Many of them have to buy only the cheapest food and are unable to enjoy the little pleasures of life like going to an occasional movie, eating out or taking short trips. They have to watch every cent they spend.

If only these people had saved, on a consistent basis, just a small percentage of their earnings and set it aside.

George Classon, in his marvelous book called “The Richest Man in Babylon” suggests that putting aside just “ten percent of what we earn and investing it”, is enough to make for a comfortable retirement.

Let me ask you a question. Are you saving a percentage of what you earn or are you like most people who spend everything? Alarmingly, there are new statistics which suggest that most people, in fact, are spending more than what they earn. The latest studies are saying people are currently spending 104% of their income.

It sounds impossible, doesn’t it? It’s not! The advent of credit cards has led to spiraling debt. Multiple credit cards and “store” cards allow people to buy now and pay later. I call this “payment by the twelfth”. I refer, of course to that famous Johnny Mathis song “The Twelfth of Never”. Many use the “roundabout” system of using one credit card to pay for another and so on. This is a recipe for disaster.

I recommend you purchase “The Richest Man in Babylon” and study it. The information it contains can make a positive impact on the way you handle your finances. At least if you read the book and understand it you can make a conscious choice to ignore its wisdom. You are then in a position to decide whether you want to be rich or poor because you will have the knowledge.

There is no better time than right NOW to start becoming responsible with money and investing for your future. What you keep putting off today will eventually return to haunt you when you have a diminished capacity to do anything about it. In other words, the longer you leave it the more difficult it will become. You cannot work forever. Eventually, the day will come when you will either want to retire or you will be forced to retire.

Rich or poor – get the knowledge!

[If you like this article and would like to use it on your own website or ezine you may do so ONLY if the article is not changed in any way and the final paragraph: "About the author", with all links intact, is included.]

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About the author: Gary Simpson is the author of eight books covering a diverse range of subjects such as self esteem, affirmations, self defense, finance and much more. His articles appear all over the web. Gary’s email address is budo@iinet.net.au. Click here to go to his Motivation & Self Esteem for Success website where you can receive his “Zenspirational Thoughts” plus an immediate FREE copy of his highly acclaimed, life-changing e-book “The Power of Choice.”

6 Proven Wealth Building Strategies

Building wealth is as simple as saving a little bit here and a little bit there. You need not have great riches in order to accumulate wealth, but you need to have the drive, determination, and discipline to successfully increase your wealth. LetÂ’s look at 6 proven wealth building strategies you can put to use today.

1. Pay Yourself First. If you do not set aside money before you start paying your bills, chances are you will never save any many after you pay these same bills. If your employer has a 401(k) or 403(b) plan, enroll in it and set up a reasonable percentage to invest. The money will come out before you see your paycheck, therefore the “loss” of discretionary income will be less noticeable to you. Maximize your contribution if you are able, especially if your employer matches your contribution.

2. Save Now. The earlier you start to save in your life, the more you will have later in life. Of course, if you arenÂ’t able to save much until after your children are grown, you can step up your savings until you retire and still have a decent nest egg.

3. Get Rid of Debt. Even before you build up your savings it is best to get rid of your debt first before starting a wealth building campaign. If your credit card rate is 14% you will find it difficult to find any investment that gives you a return that exceeds that rate. It would be better for you to pay down your debt first and then implement an investment strategy.

4. Pick The Right Mortgage. If you plan on holding onto your home for a short period of time, select an adjustable rate mortgage as your rate will be lower than a fixed rate mortgage. Use the amount saved to pay down your mortgage quicker; refinance your home if rates begin to climb.

5. Build An Emergency Fund. Nothing wrecks the best laid plan more than an emergency, particularly one that costs you money. Set aside up to six months of your income to live on in case catastrophe hits. Without an emergency fund you will be tempted to take on debt, cash in your retirement accounts, and sell valuable investments. Try recovering quickly from this sort of hit to your wealth without an effective back up plan!

6. Protect Your Assets. You can have a healthy portfolio and see it disappear quickly if you are not properly insured. Make sure that your health/dental, homeowner, life, and disability insurance coverage is adequate to meet your needs. All it takes is one legal judgment against you to wipe out your assets.

Instance riches come to a few, but most riches are realized after careful planning and effective management of your resources. You can properly prepare for the days ahead by implementing these six proven wealth building strategies today.

Article Source: http://www.articledashboard.com

Copyright 2005 — Matthew Keegan is the owner of a successful article writing, web design, and marketing business based in North Carolina, USA. He manages several sites including the Corporate Flight Attendant Community and the Aviation Employment Board. Please visit The Article Writer to review selections from his portfolio.

The Time Value of Money

Life is about decisions, whether they relate to your work, business or personal life. Often ignored is the interplay between all these areas, and the fact that a little interdisciplinary thinking can go a long way. This might sound obtuse, but many important decisions can be made easier by thinking simply, and a bit differently.

Before we do, a note about value, and ‘utility’. Business is about creating value. Our personal lives (according to economists) are about maximizing our utility, where utility is simply a measure of the happiness or satisfaction gained from a good or service.

Think of it this way, and business is considered first. If shareholders (either owners or investors) could create more value themselves using other means, why bother running or investing in a business? Assuming we don’t all have a perpetual income stream it comes back to this – if you don’t create value in today’s economy, you’ll be forced to do one of two things. Change how you do things, or cease to exist. For business the value question is rather important.

People have it a little easier in some respects. Creating maximum utility is an incentive in and of itself. In the end, we all want more, whether it is revenue and growth for business, or old-fashioned utility in our personal lives.

To get more, we return to the decisions mentioned earlier, as all the decisions we make have a direct impact on both value creation and utility maximization, in particular those related to finance. Successful strategic management (the direction you want to take the business) is supported by your investment policy (choosing which projects to undertake) and your financing policy (how you fund everything). Linked to all of this is risk management, or how you handle the risks associated with these financial decisions.

Personally, financial decisions influence your quality of life, and your ability to enjoy the things you want. Once again we are back looking at the study of incentives – how people get what they want, or need, especially when other people want or need the same thing. In this case, it’s maximum utility.

One of the cornerstones of modern finance assists us in understanding which decisions to make, and it is equally applicable to business and personal finance. Its known as the time value of money. Simply put, $1 today is worth more to you than $1 received in the future. Why? Money has a time value because of interest rates, no matter how measly, making $1 today more valuable than $1 received at some time in the future because it can be invested today to provide a return. The income from the investment will in turn, make the dollar you get today worth more than the one promised you in the future. Perhaps an example best illustrates the point.

Anne is offered the choice between $100 now, and $100 in a year’s time. She takes the cash now, and invests it in a security (or bank) yielding 8%, and in a year has $108, which is clearly more than if she deferred taking the money at the start.

Again, this comes back to the incentives mentioned earlier. Interest rates are paid because someone else can use your money now, and they are prepared to pay you a return for the privilege of doing so, which is in truth a premium for taking the risk of giving your money to someone else. With business, this concept is part of what is known as the Sharpe-Lintner Capital Asset Pricing Model (CAPM for short), allowing people to work out, in today’s terms, the value of future cash flows on any project or decision requiring investment. Widely used, this concept varies in appearance and complexity, from sophisticated models developed by General Electric to the small business owner using the ‘NPV’ formula in an Excel spreadsheet.

There is another side to this discussion, and it’s slightly more personal. The time value of money can apply to you, and specifically, your utility. To understand how, we need to look at things the other way around and get a handle on the incentives of everyone involved.

Think of large personal assets you might have, like a structured settlement. The agreements reached in setting up the settlement left you with a sense of security for the future and continuing, dependable payments over time. Comfortable. Hmm. Let’s look at the incentives.

Think like they do. The illusion is that you will be better off down the track with the settlement. The problem is, they don’t want you to have all your money now because they understand the time value of money. Its worth more to them, and they bank on the fact that you haven’t given it a second thought.

Remember that structured settlements are designed so that the paying company get the maximum benefit from the time value of money. This doesn’t happen by accident or through some amazing act of benevolence driven by concern about your long term well-being. It’s pure market and negotiating power. Considering the time value of your settlement, the incentive is for them to keep your money as long as possible to maximize their value growth.

The intent of this discussion is to make you think. Consider the time value of money in your personal life. How much value is there for you in holding first-mortgage on a property for 20 years, compared with maximizing your utility? How much utility is your monthly settlement check going to provide you in 10 years? Just think about increases in the cost of living over the next fifteen years, and how the monthly check stands up.

Avenues exist in today’s marketplace for you to better utilize these high-value assets like structured settlements and real estate notes. Naturally, decisions to do so should not be taken lightly, treating your largest assets as whimsically as an ATM card. Whether in business or in your personal life, always consult a diverse range of industry professionals to increase the amount of information and knowledge brought to bear on any decision. As mentioned at the start, risk management is an important part of any decision making process.

Remember the time value of money. It can be used both for and against you. And find out which way it is being used, just look to which party has the larger incentives.

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Jeremy Ballenger is a consultant for Sovereign Funding Group. Sovereign Funding Group is an experienced, reputable company that offers convenient, no-risk services to help you with the selling of your deferred payments and business financing including
structured settlements.