The time value of money is the concept that the value of money today is worth more than the value of that same amount in the future – assuming you put today’s money to good use.
Two simple reasons makes this principle reliable.
1. Inflation: This is the measure of the rise in the personal consumption expenditure price index, which indicates the expenses of goods and services over a certain period.
The money you have today may not go as far in the future. Inflation may erode the purchasing power your money has over time, so the amount of money you have today is worth more than that amount may be worth in the future. According to the National Bureau of Statistics (nbs) the headline inflation rate rose to 21.82 per cent compared to December 2022 headline inflation rate which was 21.34 per cent. The January 2023 inflation rate showed an increase of 0.47 per cent points when compared to December 2022 inflation rate, it said.
Inflation must be considered before investments to avoid great losses.
2. Uncertainty: The money you have in your hands now is worth more than the hypothetical money you might receive in the future. Until you have the money, it is not yours. You can only make investments or plans with the money you have. So sometimes, it is better to plan for the future instead of planning in the future.
Example: To provide a two way example, let’s say you have 5million in the bank, the annual interest rate can go from 1.4% -4%. Using 1.4% to calculate, the 5years value of money becomes #5.375,000. (Not much I guess).
Take the same 5million Naira to purchase a land or buy real estate, over time, it sky rockets 5x -10x the value of what was invested. Note: the value goes up over time. Making time the value of money if it invested right.
In this new month, understand the value of your time and your money as it can help you make good future financial decisions. Remember, Time is Money, and Money used well, produces good Value.
Happy new month from all of us🎉 @rilken_properties