Home' Trinidad and Tobago Guardian : June 1st 2017 Contents The caseJohn, 48, has always demon-
strated the greatest fiscal
discipline amongst the
Anthony, 45, and Na-
dia, 38, have often turned
to John for guidance if it involved
major life decisions regarding money.
John's latest actions, however, have
caused his friends to wonder if he has
thrown all cares to the wind. At a piz-
za establishment a week ago, John
unceremoniously announced that
he was moving out of his home into
a rented apartment at a cost almost
double his current mortgage.
Further, he informed them that
a tenant would be moving into his
home paying a rent of $1,000 below
the said mortgage.
The decision translates into a
net negative monthly cash flow of
$5,000 but John reassured them that
the one-hour commute to the office
will now be reduced to 15 minutes
and John thinks it is worth the extra
This seemingly erratic decision
goes against everything John has ever
stood for: the merits of home own-
ership, positive cash flows and their
role in building real wealth. It also
contradicts his long held view that
renting is an utter waste of money.
Unable to reconcile his best
friend's actions, Anthony who by
profession is an accountant con-
fronted John about the rashness of
John calmly replied that his new
place would eliminate some of his
mental stresses, give him more time
to sleep and provide a perfect envi-
ronment for his creative work. He
claimed that he has been sacrificing
valuable billable hours during the day
to do research and development for
training programmes, which he plans
to release to a lower income public
who would not normally afford his
Anthony sarcastic retort: "Whoa,
45 minutes, that's a huge time sav-
Nadia, an experienced brand man-
ager, chided: "Based on your expe-
rience, John, you should be charging
more money not less, but then again
if they knew you were breaking your
own rules would they still be willing
to pay you $450 hour?"
She also gently cautioned him of
the potential threat to his credibil-
ity, personal brand and livelihood
because of this decision.
Unconvinced that his argument
was well thought out and that it was
based purely on emotion, the friends
are encouraging John to retract and
let good sense prevail.
John has held his ground and in-
vited them to his house warming in
two week's time.
On the surface Anthony and Na-
dia's advice make complete sense;
a negative cash flow of $5,000 will
all but erode their friend's net worth
unless, of course, something positive
comes out of his "creative work"
Maybe it is worth mentioning that
a person's assets and net worth are
actually the manifestations of some-
thing more intangible: his or her in-
Creative work cannot and should
not be dismissed as unimportant. In
fact, everything material we enjoy in
our modern age is as a result of the
Anthony and Nadia seem to have
difficulty with quantifying John's
creativity. Maybe because when
looking through the lenses of a secure
job and a steady paycheck it would
be difficult to perceive the world as
an entrepreneur perceives it.
Risk or rather "a calculated risk"
is the essence of entrepreneurship
and it is the reason why the wealth-
iest people in the world are business
owners who, at some time or the oth-
er, may appear downright foolish.
Time, energy, money
In the world of finance, even the
smallest quantities of time could
be considered more important than
money. But time on its own is not
necessarily the complete equation.
It is the energy applied over time
that produces money. Something
that Albert Einstein alluded to in his
general theory of relativity where he
states E=MC2: Mass times the Speed
of Light raised to the power two =
So speed (defined by time and
space) and energy produces mate-
rial and in the financial realm that
material has tradeable value.
The creative energy that John
wants to harness will hopefully be
converted into a greater cash flow
than it costs to buy the extra 45
minutes each way per day. The se-
cret is in the quality of the time and
not just the time itself: travel time
versus creative time.
In one instance he is giving up
spending time on the road in ex-
change for using or investing time
to do research and development in
finding the right formula for his
The effect would not only be cu-
mulative but also a compounded in
terms of income.
John probably knows his busi-
ness so well that he can spot an
opportunity for profit even when it
is disguised as a lower price point.
He plans to sell a preset product to
a mass market that would more than
cover his $5,000 negative cash flow:
wholesale versus retail as it were.
With a training product the work
is already done and he can simply
duplicated it with minimum effort.
Compare this to the consulting dy-
namic in which the product is recre-
ated over and over every time he sits
face to face with a client.
Crunching the numbers
Now whilst the argument above
seems plausible and even probable,
some people (Anthony and Nadia)
need to see the hard facts in the pres-
ent and not the future.
So based on the 45 minute time-
saving each way on the road, John
should be able to liberate signifi-
cant billable hours in the course of
a month, which are presently can-
nibalised by his important research
and development work.
Assuming he works 20 days per
month, John should be able to in-
crease his net income by $8,500 (45
minutes x 2: to and from work = 90
minutes per day x 20 workdays =
1,800 minutes or 30 hours x $450
per hour = $13,500 - $5,000 negative
cash flow = $8,500 net revenue gain).
To break even on the $5,000 nega-
tive cash flow he would only need to
reclaim about 11 hours 7 minutes per
month (11.1 hours x $450 = $5,000).
With a timesaving of 30 hours per
month John can now sleep and re-
search during the extra 19 hours (30
hours -- 11 hours = 19 hours).
Just as an aside: If John's income
increases by virtue of his strategy,
he may be in a position to leverage
purchase of a new property that he
could not only live in but also use to
generate rental income and offset any
potential mortgage payments.
Further, should he choose to dis-
pose of his existing property he could
use the net sale proceeds as an equity
injection in a new property.
This is where things get really in-
Let us assume that John works 20
days per month, five hours per day at
$450 per hour. His maximum month-
ly gross income potential would be
$45,000, an ideal but not always the
case in consulting as there are of-
ten periods of vacant time slots, no
shows and zero-income days.
BG16 | FINANCIAL ROAD MAP
BUSINESS GUARDIAN guardian.co.tt JUNE 1 • 2017
Leveraging to create wealth
Continued on Page 17
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