The Time Value of Money: The Key lesson of Wealth

Money is a skill that can be learned and this is why in many cases wealth is propagated through families. The rich get richer as they say. And also why most people, despite all their effort and time, never break into the ranks of the rich. It’s because they don’t learn the rules of money. 

I grew up in an immigrant household of academics so this was something I learned the hard way. 

Money now in hand is worth more than in the future. It’s liquidity. That’s why if you invest in something long term, the pay off has to be massive to justify locking up your cash. You need to get paid for the risk of locking up your cash. 

This is why you need a diverse portfolio and income streams. You need investments with different time horizons and return profiles. Nick Maggiuli writes an amazing post on what these 7 income streams look like. I highly recommend reading it yourself: 

https://ofdollarsanddata.com/7-streams-of-income/

1. Earned Income

2. Capital Gains

3. Interest Income

4. Dividend Income

5. Rental Income

6. Business Income

7. Royalty Income

These are the only ways you can break limitations of trading time for money. 

And that diversity of time and liquidity is key to making sure you don’t have the cash crunches that lead to bankruptcies. Something I almost experienced in 2020 because most of my net worth was stuck in illiquid and very long term investments. 

They say cash is king, I would go so far to say “diverse cash flow is king”.