Your Financial Superpower
You have a superpower. You’ve probably used it without even knowing what was really happening, and, for better or worse, it has changed your life.
In fact, nearly the entire human race has this ability. It has been honed over thousands of years, and made more efficient with technological innovations and quantified with mathematical formulas.
You can manipulate time. No, you can’t physically travel backwards in time, but you *have* manipulated time, pulling information from tomorrow for use today, and sending information from today into the future.
You do this with the magic of Finance.
Mortgages, car loans, and student loans are all so mundane that one hardly thinks about them at all now, but each is quite amazing. Each enables an individual to pull potential value from the future and apply it in a lump sum payment *right now*.
Conversely, a person who wants to retire twenty or thirty years from now can take a portion of their current earnings and buy their retirement today (for a substantial discount). Finance even has a term for this, called *future value*.
Most businesses are built on the idea of finance as a time-altering mechanism. Corporate finance departments can conjure up a fortune of economic value from the future, apply it to a current project today, and keep the generated excess profits. On the individual level, this ability to generate future value is available from savings accounts, stocks, bonds, and peer lending. This financial superpower has enabled the human species to reduce risk, reallocate capital, and progress faster.
There is, of course, a potential downside to using this ability. Those who take too much from their future self now can remain indefinitely indebted. Businesses can choose the wrong project to invest in, which can cause disastrous ripples for years to come. Workers may not spend enough of their current salary on retirement for their future selves, and must instead spend more time working than would be preferable. Therefore, one must exhibit caution when using considering finance. After all, with great power comes great responsibility.
- Stephen Zentner
- August 12, 2016
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