How should you think about the Time Value of Money?
Transcript of Ep 22 - The Time Value of Money
Scott Tucker: And now you were just mimicking the topic of today, which is a fly trap and to have. Fly to fly into the trap. You have to have the stranger. I was talking about the fly trap I had, where the flies were so dumb that they were literally breeding inside the trap. And so I was like, geez, they're not even giving themselves a chance.
And that's what if you really look into it, And we're not going to get into it today, maybe another time, but the way our financial system works it's a bunch of flies in a trap. And it really has to do with the value of. The money. If you there's that, have you seen that graphic that's gone around where it shows like the dollar bill and then it's decreasing since 1913 since the federal reserve and the value of the dollar has decreased like 96% or something like that.
Trevor Maxwell: And I think you and I had a discussion. A few weeks ago. And I think we probably even brought it up on one of these that's, as we go along through this military finance 2.0 stuff and we get to the portion where we start talking about, growing assets and stuff like that.
That's absolutely one of the things that we look at on there because it, like you said, the. 96% over the last hundred years, people will say what does that even mean? Basically it means, a dollar back in 1913 has the same purchasing power is 4 cents. It would basically.
A dollar today would buy the same thing as 4 cents back in 1913. That's what I was trying to get at.
Scott Tucker: And that just means, and that's the whole point of investing. The investing was never a thing when the values of the. But the currencies stayed relatively flat. People got the value of the thing that they produced and as the industrial age came about, then there was investments out.
Okay, cool. I found the graphic. Hold on. I'm going to share my screen. Yeah. I was like, this is gotta be on Twitter somewhere. Does it
Trevor Maxwell: show like the previous a hundred years before 1913? What inflation was like? I know, there's a lot of factors that have contributed to it. Cause we have more of a, a global economy now, but
Scott Tucker: I'm just looking at the chart. I just show some example, examples of where things were at the given time, but I'm still a powerful image.
Trevor Maxwell: Yeah. I think it's probably about to get worse too, because you look at the fact that what are the national deficit grew by basically 33% over the last few years.
That's insane. And we just created what, like six or $7 trillion out of thin air. That's, if you study economics, you know that as supply increases, demand decreases.
Scott Tucker: Yeah. They say that wouldn't. Did you say the 40% of all the dollars that have been created in the history of the U S economy were created in the last year?
Trevor Maxwell: Yeah. That's,
Scott Tucker: it's all the money in circulation or perceived circulation.
Trevor Maxwell: Yeah, a lot of that. We could sit here and dive into the gold standard and all of that. But I think that would probably take us off track from, the focus of today's discussion. We're going to talk
Scott Tucker: about the time.
But as these topics come up, let's take notes. And make sure we do shows on them in the future. Yeah. Because that's the point is, yeah, we want to teach the basics, but. We also want to teach Joe some of the stuff that's behind the scenes for some strange reason.
I never, that's why I never understood this stuff. Oh how money is Fiat currency? And now they just print it. Like, why is that understood more often in our community? I like doing that too.
Trevor Maxwell: Yeah, I actually, I have a few articles that I've written. I don't know if I've published any of them yet, but I just, I have them there on my computer, like talking about inflation and what it does to, Any kind of investment you have or any money that you have and how it's not necessarily a great thing, but yeah, I think, inflation does tie into something else that w we are going to discuss today, which is the time value of money, right?
Because then that's what inflation is really tied to is time over the last a hundred plus years the value of the dollar has decreased by 96%. That's insane. The best way to make sure that the money that you have now, Is going to have the same or more buying power, 20 or 30 years down the road, however far away, retirement is.
And it's not just then it's okay. What about all the time in between, right? Because I don't like hearing, the traditional financial advice of you need a comprehensive plan to make sure that you're prepared for retirement. I get it. Yeah. They want you to take advantage of the time that you have between now and then too.
To have that income, but there's a lot of life and opportunities in between them to take advantage of and, to be, do I look at that as when I'm 75 or 80 and on my deathbed, do I want to be like, man, I sure am glad I'm laying here on my death bed with $3 million in my bank account.
And I didn't really do a whole lot in between them. No. I felt like you can't take it with you. I'm not saying don't be prepared, but at the same time, I understand there's a lot. I'm 40 I'm going to be 41 years old next week. I'm not planning on retiring for quite some time if I ever retire.
So to me, I look at it as like, how do I use this stuff to create opportunities for myself to have income, to support the life that I want to live.
Scott Tucker: Yeah, you can do like Tim Ferris does mini retirements. I love that concept. Cause I was like, that's what I like to do is just, take as much time as I want to go do something different for awhile.
So I've been taking no time doing anything like that, so I could focus on building the business so I can do that someday. That's, that's all part of the plan.
Trevor Maxwell: I'm going to start calling it that I'm like, Hey Scott, I want to be retired for the next two weeks.
Scott Tucker: Why not? That's the whole point of being a independent it's sub capacity.
Who cares when you know how you're employed, how long that employment is, if it's a contract, where you're at the more mobility and flexibility you have in your schedule and your time, your location the more. Value of any, any money is because you're not tied necessarily to one economy and the economy is much more broad than it typically would be your economy.
And it used to be go to work in a small town and you spend everything there all your time. Was there every, everything was there, your whole network, but now it's, doesn't have to be that way.
Trevor Maxwell: Yep. Walmart destroyer of small businesses.
Scott Tucker: No Amazon really. Amazon was a creator.
A lot of people don't realize a lot of things you buy on Amazon or from people who create stores and they're selling it on Amazon. You're just buying it through the media. It's basically buying stuff off the shelf at Walmart. Somebody created the product.
Trevor Maxwell: Actually I think in my hometown and it's probably happened in a lot of other small towns across the us.
The malls are what really killed. Cause I looked at pictures of my hometown Fairmont West Virginia back in the, fifties, sixties, everything was in town, all the stores, restaurants, stuff like it was all in town. And then I think in like the seventies, the mall there, Middletown mall was built and everything moved to the mall.
So they had Sears and JC penny, all the big retailers move to the mall. A lot of those stores, department stores and stuff left downtown and went to the mall.
Scott Tucker: I feel like all the malls are called Middleton mall, but what's happening to malls now, right? Yeah, they're all.
Trevor Maxwell: All the malls look at MacArthur center in downtown Norfolk.
When I moved down here in 1999, that was like, unrevealed is like the new Juul of downtown Norfolk. It was a night. It was an awesome three story mall and had tons of stores. Theaters,
Scott Tucker: movie theaters is going to go to a movie theater anymore. A
Trevor Maxwell: rain forest cafe, like all that stuff. Now it's that place is a ghost town.
Scott Tucker: No, but what's actually happening is a lot of these malls that are completely abandoned are being bought up by Amazon for warehouse, fulfillment centers. Perfect. It's they're they played their game. He's been scheming this out for decades and that's the time value of money to know you're going to just completely disrupt all the systems.
Amazon era, I just read an article has 77 airplanes now. Like they're not bad. They don't need fat. They're not going to need FedEx. And I see so many Amazon trucks on my street. Yeah, it's it is nuts. Takeover like the entire economy, like that's, their goal is like, everything will go through Amazon
Trevor Maxwell: building a huge distribution center out here in Suffolk, where I live and I drove by there one day.
My God, dude, that thing is massive. It is the last time I drove by and looked at the building and I was like, that thing is massive. I think it was the Pentagon.
Scott Tucker: They, they say, Hey, y'all no way. If you're worried about, that taken over your life and taken over control, it's Hey, buy locally and stuff.
It's yeah, but it's easier. And look, I can get these books. If we get these books printed, how many people have we've sent books to. That I've taken the time to read it and have come back to us and said, Hey, tell me more. I'm like, Oh, okay, cool. Good. I'm glad I'm sending the books around.
Trevor Maxwell: I've actually got a batch of them. I'm about to mail out to some
Scott Tucker: people right now. So yeah, it's only if a, for folks that are interested in the books are up on Amazon. You can get the print or. A Kindle version, of course, but you can also get on our website for the PDF for free. But if you do want the printed that's the best way to get it, unless you happen to know Trevor or I directly we can get probably one to you for your charge.
Trevor Maxwell: Okay. Since we got into that time value of money, we see like how, Amazon is taking advantage of that, but really. On a more personal level, like how does that apply to the individual? And this kind of ties into, we, we did the carry over because really this kind of ties into what we talked about last time the efficiency of your dollars.
Do I invest or, so that's the question that I. A lot of people ask is Hey, should I wait until I have all my stuff paid off before I start investing in creating wealth? And if you go talk to the talk show hosts and the authors, they're going to say no debt is the devil.
Go take care of all of that first be debt free and then start. And really that's. Cause I look at the math of it. And I've even heard some of them say like on those YouTube videos I heard a D Dave Ramsey video where he's like, when I tell somebody this, the mathematical side of my brain just drives me insane, but I know that's what somebody is more likely to do.
And I'm like maybe they're more likely to do that stuff because they don't really know. Th they don't have the knowledge. They don't know how money works. So to me, I'm like, no, it's, you should not wait until you pay your house off. Or you're trying to pay your car off early to start investing right.
Pay yourself first from an efficiency standpoint. It does not make sense to pay something off. And then have that money go work for you afterwards, especially cars. That's the one that like we talked about last week. Why am I going to pay cash for a depreciating asset? That's just saying I'm going to go pay, $30,000 for this car.
And. Maybe instead of that, like I'm just going to take $30,000 out in the backyard and burn 20,000 of it. That's basically what you're doing.
Scott Tucker: Or my mom called me yesterday to say she picked up her tax return and she owed some money in taxes and I think.
Trevor Maxwell: Yeah, he did.
Scott Tucker: No, but I hit the back button by accident. My name was my mom calls me yesterday and says, Hey, she owe money. And. And I was like, Oh no, she's going to ask like wrong. She didn't say that. She just said, Hey, which, which account should I pay it from? And so I was like, cool. She's been trained that it's actually better to pay at the end of the year versus a return.
Trevor Maxwell: Yeah, no, my, my dad's the same way. He's I hate getting in tax for her. And in my opinion, you should hate getting a tax return,
Scott Tucker: it at the end of the year too. But that's another story. Yeah.
Trevor Maxwell: I guess the big thing is just making
Scott Tucker: fixed-income
Trevor Maxwell: system. Yeah. And that's a, it goes back to the whole mindset thing.
I've talked to so many people that they're just afraid of using that money to work for them. Cause they haven't done it yet. They don't understand. It's thinking about the first time he ever jumped into the deep end of the pool, you didn't know what was going to happen. You were scared beyond belief and then you jumped in and you're like, Oh.
Okay, this isn't so bad. So people just have that irrational fear and they're like I want to stay in my nice warm bundle. I want to stay in this big bag of other flies and get my tax return every year, because that makes me feel comfortable. Okay. That's fine. But know,
Scott Tucker: yeah. It's like a, when it feels like, gosh the S the way it's set up.
Oh, we'll give you a return. Some of your money back. It's Oh, it's like a, here you go, buddy. Yeah.
Trevor Maxwell: Here's your
Scott Tucker: stimulus. We're giving you your money back to you. And so that's how easy it is to trick people a little bit too. Thinking about where they fit in
Trevor Maxwell: part of that problem is people don't make that parallel.
They don't see it between Hey, you know how I feel in the reality of the situation are oftentimes completely different things. And that's what they do. They said I feel like I should do this. And when you sit there and ask them, you can ask them two or three questions and get them to the point where they say Oh, okay.
Maybe the way that I feel isn't. The actual, isn't actually the reality of the situation. And it's just one of those habits that you have to get people to understand It's not the best way. It's a way to do it, but it's not the
Scott Tucker: best way. And I don't think there is a getting people to understand.
We're more trying to do is just making sure that all of those who are willing to understand. No about it, but there is no convincing. Yeah.
Trevor Maxwell: Some people they're never going to they're never going to come around and I don't know what to do. Yeah. You can't save everybody.
But in the meantime, I just try to put the knowledge out there and hopefully people will take that on board and, start to learn from it and ultimately be successful because of that. I think with this, we were talking about time value of money. We bring this up because in the end time is.
Absolutely the greatest accumulator of wealth, anybody who studies finance or anything like that understands like time plus compound interest equals, growth. And if you're waiting to take advantage of that, you're not the longer you wait, the less you're going to have it. Whatever your goal is, whether it's like, Hey, when I have this much money by them time on 35, or I want to have a certain amount of money when I'm.
Getting out of the military because I want to go start my own business the longer you wait. And I know this from personal experience th the worse off you're going to be, I was that guy if I could do one thing say, if you could go back in time and tell yourself one thing, what would you do?
That would be the thing that I would say, Hey, Yeah, go back. Take advantage of all those times you deployed and came back and reenlistment bonuses and came back from deployment with a bunch of money. Don't pay your car off don't, go out and buy new guns or whatever other cool thing that you want.
Like start paying yourself. And 20 years from now, you're gonna thank me. It's not going to happen. So the best I can do now is just learn from my mistakes. Moving from.
Scott Tucker: Yeah, right on. The things I wish I would have, even if it wasn't just, had I put my money into an account and assuming I would've gotten the 8% compounded. Sure. It would have doubled or tripled or whatever the time value of money equation is. But at the same time, I think about the time I wasted or the actual value of my time, that I didn't spend learning how to create money, which is essentially, business.
And that was the whole point of rich dad, poor dad. It was, put your money to work. Figure out how to, in most cases, real estate. I, gosh, there were a lot of people who started in their 20. You did started doing real estate investment in their twenties that I was over. I happened to be overseas.
That wasn't a good fit for me, but it was still the internet age. Like I had an opportunity to put my time and my investment into Learning how to do Facebook. Cause the opera singer I was dating at the time she needed to promote her business or her singing career, but she wouldn't let me use Facebook.
And I remember being annoyed that I didn't think we were getting a good return on investment or I thought we could have. And that was, in the early days, imagine I actually learned that would have been quite valuable.
Trevor Maxwell: Actually. I didn't start. My twenties started in my late thirties.
Had I started in my late in my twenties.
Scott Tucker: A lot of people do and some people start these. It's not about, starting a business and becoming a millionaire overnight with some website, but. You do hear about people just like you buy an investment property and get somebody paying you rent.
You can create a website on a topic and eventually, start getting paid rent. In the form of advertisement to make some money and people do that all the time. And that's just one example. So one
Trevor Maxwell: thing I was going to like, as we're talking about this I wanted to bring that slide up to house one.
Do you have that? Because that was the other one. We did the car one last time. I wanted to bring the house up one up because this is a very common misnomer that a lot of people have. So if you're looking at this is something that I created and basically this is my own personal scenario, so my wife and I bought her house. We finance it, it I think is 420,000 it three and a half percent simple interest, simple math interest, not compound interest. So the thing about a house that's different than a car, it actually appreciates in value, hopefully, unless there's a real estate bubble, which I experienced that too, with the house I.
With another house that I had owned. So you're paying your principal, your interest, your taxes, your insurance, on that. One thing about that too, while you're paying that mortgage, having that interest, that's a tax deduction for you. So that throughout the years you're doing your taxes that's something that helps you out.
I will say this under the current tax law, if the amount that you have finances more than 750,000, you're not going to be able to deduct all of that interest from your account. From your taxes, but, as I'm paying into this thing, the real estate market's growing at probably at a rate of two to 3% per year.
So it's increasing in value. So what I looked at right, $420,000, three and a half percent for 30 years, just the principal and interest on that was about 1,885 a month. That means over the course of that 30 years, I would have paid $678,000 into this house. 258,000. That would be interest.
What I said was, Hey, you know what I, cause I went to business school. I have a spreadsheet where I could do the amortization of the loan and I said, Hey, what if we start throwing $500 a month towards the principal of this? And, I ran the numbers on it and I said, okay, that's now we're only going to pay $170,000 in interest.
So it's going to save us about $88,000 on this loan. And it's going to shave about 10 years off of the life of this mortgage. And I thought that was really smart until somebody came at me with, okay. Hey, what's the, this is another business turn is, Hey, what's the opportunity cost of your decision.
If you're not familiar with opportunity costs, it's basically the opportunity that you had. Had you chosen to do something else instead of what you did do. So it was like, okay let me see here. I threw $500 a month away at 7%. I use 7% because if you look at the historical average, the S and P 500, it's about 8%.
So I tried to be a little conservative there for 30 years that would have given me. No $610,000, that's just assuming, steady growth. Obviously we know it's not steady. The market goes up and down all the time, that would have made me a pretty significant amount of money right there.
A lot more than I would have saved an interest. So had I paid the house off in 20 years, I'd say, okay now that I paid my house off, I can take all that money. I was putting towards principal and interest and, throw that into the investing along with that $500 a month. Now I'm only I'm paying into this for 10 years, but that's about $200,000 less than I would have had.
For a lot of people, that's not a small amount of money.
Scott Tucker: It was a real dollars. And really what this has given you is even if you didn't come out $200,000 ahead the extra flexibility that you get over all these years to make different decisions and not just to be tied into one. Yeah, strategy.
This is really a different way of explaining the similar benefits we get from our version of the survivor Liberty plan, our version of the SBP or survivor benefit plan, all it's alternative because it's like, all right, you're paying these payments like a mortgage. Anyways. Some of them go for the cost of doing business, the interest and some come back and.
Benefit, in the mortgage, it's living in a house and in the SPP case, it's, a benefit, in the event that the veteran passes away first and that's the only benefit. Whereas in our strategy, much like this, you can get a lot more bang, return on investment.
All throughout the scenario, not just the one version.
Trevor Maxwell: Yeah. And, doing it this way, like investing that for you instead of giving the bank their money back sooner cause they're gonna say, Oh, this guy is paying us extra money every month. We're going to use that to go out and make more money.
That's what the bank is doing with the extra money that you're paying. So either you can put it to work for you or you can give it to the bank so they can put it to work for them. There's a, another scenario that isn't the textbooks. So anybody that goes to any kind of like financial advisory curriculum one that I, a class that I had a while ago where they show an example of a guy who just goes and throw in an arbitrary amount called a thousand dollars a year.
So if you have a guy who invests a thousand dollars a year for 10 years, Into an account. And then he lets it sit there and grow for however long, 30 years. And then you have another guy who waits 10 years to invest. And then he throws in a thousand dollars a year for 20 years. So at the end of this timeframe, 30 years later, which guy do you think has more money?
It's actually the guy in know, nobody can answer me, but it's actually the first guy who only invested. $10,000 over 10 years, he's got almost twice as much as the guy who put away a thousand dollars a year for 20 years because he took advantage of that extra 10 years. By the time the second guy started investing, the first guy already had something like.
Thing is like 17 or $18,000, right? If you've ever heard of the rule of 72, it basically says, if you want to figure out how much time it's going to take you to double your money, divide, divide your interest rate or divide 72 by your interest rate. And it'll tell you it's going to take this many years to double your money.
If you want to know what interest rate you need to double your money, subtract the amount of year or. Divide 72 by the number of years that you have. And it'll tell you what kind of rate of return you need to do that. So if you do I think I did 10% for that, right? At 10%. You divide 72 by 10%.
That means every 7.2 years, it's going to double your money. But anyways, to get back on point, the second guy who threw away a thousand dollars a year for 20 years, it doesn't matter because he lost that extra 10 years. He could throw a thousand dollars a year for 80 years into that thing. And he's still never going to catch up to the first guy.
Scott Tucker: Yeah, no, it's powerful stuff because not just that, but also anybody that's saving earlier is at least thinking about, how money fits into their future and creating time for themselves to figure out what they want to be doing, because there's always another way to. Maybe start something that can create a lot of value at once.
Trevor Maxwell: And it's, from that mindset standpoint or the behavior thing that all the gurus follow my take on it is look, if you're willing to put this off for a day, you're also willing to put it off for a week or a month or a year or 10 years. If you don't have that mindset of I'm going to start taking care of myself right now, who knows when it's going to click for you.
And, the opportunity cost for you is you may miss out on 20 years of your life to start, building or creating something that's going to make you ultimately a lot more successful in the long run.
Scott Tucker: No, exactly. And and that's the unfortunate thing, given that we're in America, in the internet age, there's so much opportunity.
But if we are stuck, Just working for somebody else for our whole lives and never actually try. And then we'll never know, but cool. Awesome man. No, that's a great topic and glad we got to add it to the curriculum, but for those that joining us, make sure you are subscribing to the channel.
At US VetWealth, we're almost at 300, so that's pretty cool. And we've got a bunch of books out there we're redoing the website going to podcasts. Got Trevor's get to vet podcasts out there. Anything you wanna announce for that? Sure.
Trevor Maxwell: Now we still have herb Thompson's episode is for this week.
He's the author of the transition mission. Awesome a book we got I think next week we're going to have another guy, Richard Kaufman. Who's an army vet has his own podcast, vertical momentum. I think that, that guy, he's a, I love him to death, man. He's just got a big heart. He loves talking to vets and I was glad that we actually got him to come on the show cause he's got a good story.
And a part of it. I almost heard crying. That's like what he was talking about it. Oh boy. Okay. Yeah. I just, he's one of those guys that like, he's, he talked to him, you're like, I instantly liked him listening to him talk and he's got a lot of love to share and yeah, so that'll be coming out next week and we release our episodes every Monday at 12:00 PM.
Scott Tucker: Okay. Cool. You'll have to add a hashtag at or something,
Cool. Cool. Awesome, man. Congrats on the success with that and yeah, for everybody else, we'll see you on a Friday at noon. Special announcement that day. Change of scenery slightly. I don't know. We'll see. But all right, we'll see you then. Thanks.