Time Value of MONEY - In SIMPLE Terms...

gungunkrishu in TradFi • 5 days ago (edited)

Hey All,

After going through the detailed post from @hurtlocker on Time Value of Money and gaining some understanding around the concept involved. I felt encouraged to explore this topic further. So, here I am presenting to you all Time Value of MONEY - In SIMPLE Terms...

source::

The image above is taken from my X feed; post from Brain Feroldi. It has all the formulas related to the Time Value of Money, we won’t be diving into that level of complexity here as promised. And hence will be looking into some basic to understand what - Time Value of Money is all about. TIME VALUE OF MONEY aka TVM in simple terms means money today is more valuable than the same money in the future. Some of you may question WHY? Well the money today if invested today will yeild interest and whereas the same money in future loses value due to inflation. Lets us now try to understand the same concept with the help of an example::

TIME VALUE OF MONEY TVM - With an Example

Lets as say we gave $1,000 dollars today to one PersonX and the same amount given to another PersonB after one year.
PersonX invested $1K at 10% - this becomes $1100 after a year and this amount becomes the future value & Whereas the
PersonB gets $1K after a year - this is worth less than $1K today (Present Value)

So you guys see the difference here? Even though the amount is the same, money received earlier grows in value over time. Hence we can say that earlier money is more valuable than later money and this is called the Time Value of Money. So we can say that::

Earlier Money = More Power
More Time = More growth & hence
Regular Saving like SIPs [Systematic Investment Plan] & FDs [Fixed Deposits] beats late lum sum savings

There is also this Rule of 72 that I would like to talk about as it has more to do with more time and more growth. First the rule of 72 formula which is as follow::

72 ÷ Interest Rate = Years to Double Money

Now considering our example of $1K it would take 7.2 Years to double the money. Here it is how::

Example: 10% return → 72 ÷ 10 = 7.2 years

Drawing the conclusion here time is our biggest asset when it comes to money. With time in hand adjustments can be made so as to improve outcomes and make better financial decisions. No time means the risk is higher, and higher risk increases the chances of poor outcomes and at times hefty losses. So the jest of it is that earlier one start saving or investing, the more money they can have/multiply through the power of compounding. Well this should be it for todays post on - "Time Value of MONEY - In SIMPLE Terms..." Happy Investing & Start Early for more Gains.... Cheers

Image Courtesy:: Brain Feroldi

Best Regards
Paras

PS:- None of the above is a FINANCIAL Advice. Please DYOR; Do your own research. I have a personal interest in blockchain, stocks, and cryptocurrencies and actively invest in emerging projects.

#money #tmv #timevaluemoney #timemoney #finance #value #time

5 days ago in TradFi by gungunkrishu

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fullcoverbetting 5 days ago

While I do find it a great article and a good explanation. I do miss the reasoning why that 1K of today has less value within one year. This is due to inflation according to me.
But not every 1K is the same. While life in general gets more expensive, some things do get cheaper. Suppose that I do want to buy a new television today or next year. Due to the rapid improvements in technology. That same TV will for instance be cheaper next year.
As an example. I did buy a new TV last week. If I would have bought the same TV when it was introduced in the beginning of last year, I would have paid 2.5K, due to the fact that I was willing to wait and they do need to get rid of the stock before the new models are launched, I did buy it for around 1.2K.

Feels contradictionary which I am writing at the moment. So yes money will have less value in general within one year, but not for all situations I guess.

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gungunkrishu 5 days ago

Thank you providing inputs. But I said $1K today has more value then the $1k received after an year.. Cheers

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redditposh 2 days ago

_{This post has been shared on Reddit by @blkchn through the HivePosh initiative.}

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dd1100 5 days ago

In this post, you are referring that money's volume will be greater when being invested with positive interest earlier rather than later and that is because we are multiplying its quantity with time. so TVM has nothing to do with money's buying power

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angeluxx 5 days ago

One thing became clear to me: as long as you have money, don't keep it under the mattress; you have to put it to work because it's worth more today than later. If you invest it today, you'll have more profit than if you do it later. I understand.

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yusmelys 4 days ago

That's a good idea, the sooner we start Investing our money is the best way to see it grow. That's good advice. And it makes me reflect on how true it is that money is worth more today than it will be a year from now. We Venezuelans aren't economists, but we know a lot about devaluation. Thanks for your valuable information, friend.

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bozz 5 days ago

Time in the market > Timing the market.

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gungunkrishu 5 days ago

Time is money and power both..

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lee1938 4 days ago

https://x.com/i/status/2009013642482860446
#hive #posh

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