What is Return on Investment?

Return on Investment or ROI is a term usually applied towards a financial measurement. The ROI is given as a percentage and offers a quick comparison with other investments. The percentage is easily calculated by subtracting Costs from the Gains and dividing that value by the Costs. The following is an example of exactly how a ROI is found.

ROI= Gains-Costs/Costs. If a person had gains of $150 dollars and the costs were $100 dollars then the ROI=150-100/100. His return on investment would be considered 50 percent. In terms of money the investor made 50 dollars.

The ROI is a more important and accurate comparison measure of investments then when a person is speaking in only dollar amounts made from an investment. When someone else is known to have made 200 dollars in an investment, it is easy at first glance to assume he made the better investment. He made 4X as much in dollar terms compared to the above example. However, if he had Gains and Costs of 1000 and 800 dollars respectively, then his ROI was only 25 percent. Who made more when comparing it this way?

If the second investor would have invested his 800 dollars in the first investor’s investment, then he would have realized a 400 dollar gain instead of only his 200 dollar gain. The investment in the first example has the better ROI.

Likewise investing doesn’t always have to be about money. The word invest can be defined as “to spend or commit ‘something’ in order to receive a future advantage or benefit.” The ‘something’ could be a person’s time or other resources. What is considered a better ROI when speaking of spending or committing someone’s time?

Included in an essay entitled The Way to Wealth written by Benjamin Franklin is a quote which says, “Lost time is never found again.” Time is being continuously spent by each person every minute, hour, day, year and so on. What return is being gained? What are the costs? These questions can be the most important questions for any person to ask themselves. Finding the answers and making any desired changes could dramatically alter that person’s life.

The popular “Time is money” quote can be better understood when thinking about ROI in this way. Investing time and receiving a gain on that time can be realized in many different ways. Sure it is true better time management will provide financial gains but it doesn’t always have to come down to cold hard cash.

Once a person begins to understand the investment of time and the gains which can be made from it, their whole perspective of life may change. Taking time or investing time in understanding better ways to utilize one’s time will offer gains, advantages, or benefits for a person which they will not regret.

Enjoy and invest well always

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