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Thursday, February 26, 2015

Why time management matters in personal finance

Time is something many people have a lot of, but little of and what others have little of, but a lot of depending on their work and life situations. In any case, and just as with many endeavors, doing things right takes focus, effort and knowledge among other things. Without these things, the risk of haphazard decision making rises and when lack of certainty and precision is coupled with household finances. So how do people with little time solve this possible problem?

Time management is a prerequisite to many things, everyone does things in the same time and life happens in real time everywhere. So why do some accomplish more things and do more with the same amount of time and money? How time is used is one of the reasons, but it's not always easy. For example, multitasking without efficiency and focus does not necessarily accomplish anymore than than focusing on one task. Plans are also important because they serve as a pre-defined source of direction that saves time having to figure out what to do next. A well organized plan saves time in the same way an investment in quality reduces time-consuming complications later on.

In terms of money, a well developed and thought out financial plan and attention to financial details such as cash flow and a budget do more for household finances than back-of-the envelope mental check book balancing and budgeting. In other words, miscalculating expenditures and income potentially leads to cash flow problems such as bounced checks, overdraft fees and even a lower credit score. Similarly, effectively managing debt by transferring to lower rates, debt snowballing and restructuring costs also does more for household and individual finances than not spending a little time on finding relatively simple solutions to run of the mill financial situations.

Other ways time matters to money management are in investing and retirement planning. Time is crucial to effective investing. The wrong holding period, poorly timed market entry and exit points and not allowing fixed income investments to compound and grow negate their potential value. Also, time is a variable in the distribution of annuities, tax filing, expiration of insurance contracts and achievement of retirement income goals. Without knowing when these times are and what they are for can contribute to late payment fees, missed money goals and the loss of money.

It is easy to understand time is important, it is more difficult to take the time to understand and use this principle to improving personal finances. What is more, thinking more that what is possible can be achieved in a certain amount of time is also a pitfall. Over estimating and under estimating the utility of time leads to incomplete tasks, and over ambitious plans, which limit the effectiveness of time management and organization. Taking the time to understand how to use and implement time management properly is a good investment of time. A simple exercise is to start small  and see how much more you can do with 60 seconds without sacrificing control and accuracy.

Time pressure is another risk associated with time management. Rushing creates stress, increases error rates and reduces the effectiveness of time that would otherwise be used well. Balancing time with each specific function or tasks necessary use of time with optimal use of that time helps avoid that problem. The signs of good time management in personal finance include less financial stress, higher savings, improves return on investment and a higher credit score. Not all these things are required to be evidence of good time management, but they are a good indicator of how effective a revised time management approach is.

Image: Tax Credits, CC BY-SA 2.0