THE LONG AND SHORT RUN GAME

I watched a video on TikTok about saving and playing the long-run game, and this kind of video usually rubs me the wrong way I am here (as always) to refute this message because I do not only consider this to be misleading but wrongly interpreted or communicated in a way that impacts the lives of those who this message is constantly pushed towards–the poor.

Having little or no capital or revenue stream puts you in the poor category. Being in this category means you have little to no chance of becoming rich or comfortable by saving. You do not have the capital or the network to make this happen (which are the things you should be most concerned about). Your income isn’t enough to sustain your very frugal lifestyle and setting aside some of that very small income is only doing you a great disservice. Why? Well because of a thing called the time value of money.

The time value of money (TVM) is the concept that a sum of money is worth more now than the same sum will be at a future date due to its earnings potential in the interim.

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For stance, 2 million nairas could have been a second-hand Lexus ES330 (2005) last year. This year I need close to 3.2 million to get the same car–over 45% more. If I had forgotten about purchasing the car to invest for a 20% annual return I wouldn't still be able to purchase it this year. This is one of the ways time affects money.

Often people are advised to invest their money in order for it retains value over time and possibly compound in value. Now, your money compounding in value is not the same as compounding in size/digits. For instance, 100-dollar compounding for 20 years doesn’t mean it retains its value (The All-In Podcast team talk about this more extensively in one of their recent podcasts). A dollar today is greater than a dollar tomorrow. This is why VCs are constantly looking for new income streams because they know holding money or earning an indignant interest on that money that does not account for inflation is synonymous with throwing your money away.

MONEY IS IMPORTANT BUT BEING CAPABLE IS MORE IMPORTANT.

I will say this to any young person in my age range (20-30), the most important thing at this stage is to build capacity–either financial or social capital (the latter is easier). This is why we spend most of our active young age getting an education. Unfortunately, in this time and age, education is a basic necessity. It doesn’t necessarily give you an edge over others. Not having it puts you at a disadvantage, except you can develop the skills that can make you valuable in the marketplace.

By building your capacity your income increases, leading to a surplus which you can redirect into investments (for the long run). This is where delayed gravitation comes into play. You don’t need to spend everything you earn, but this does not apply to those whose income can barely satisfy their physiological needs. So I will not tell someone who earns less than $5 a day to invest because it serves no purpose. What I would tell you to do instead is save for a $10 course online that can help you increase your earning capacity.

When we in developing countries listen to first-world economists, we do not take into consideration the difference in our economic climate and we end up regurgitating ideas that do not apply to us.

YOU BECOME RICH BY CREATING VALUE

Saving and investing is a way of creating value as you are lending your money to the banks/companies who use these monies to create products and services that impact the lives of more people. However, it is not the only way to create value.

In conclusion, value can be created in different ways: financially through products and services; and socially through relationships. Thinking about the value you create gives you a better approach towards wealth building. Money does not make you rich in every instance but your value proposition can, especially when it is feasible and benefits a large number of people.

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