What is the importance of time value of money concept in personal finance planning?
Asked by Mahesh Last Modified
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The time value of money is a financial important concept that holds that an amount of money is worth more in the present than the same amount of money at a future date. The reason for this is the opportunity cost of receiving money at a date in the future, as opposed to today. Money available today could...
read more The time value of money is a financial important concept that holds that an amount of money is worth more in the present than the same amount of money at a future date. The reason for this is the opportunity cost of receiving money at a date in the future, as opposed to today. Money available today could be invested immediately in a business, an education, or an investment portfolio. Time value of money is a key concept for everyone read less
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in option premium depends on time value three types in the money ,out of the money, at the money premium depend on time value money
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Time value of money gives simple idea about the value of your money after particular time like today one rupee you can purchase item like pen . Same pen if you try to purchse after five years it may cost 2 rupees. So value of money reduces as time passed.
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Its very simple though it is not taken into account in personal finance planning. Now suppose you are planning to purchase a car after 5 years and you have checked the cost of car to be 10lakhs and decided to save 2lakhs every year for that plan. Now after 5 years you have surely accumulated 10...
read more Its very simple though it is not taken into account in personal finance planning. Now suppose you are planning to purchase a car after 5 years and you have checked the cost of car to be 10lakhs and decided to save 2lakhs every year for that plan. Now after 5 years you have surely accumulated 10 lakh ruppes but the same car's cost would have definetly imcreased. Therefore it is important to keep in mind that Money has a TIME VALUE, the purchasing power decreases with increase in time , thereby the value of money(puchasing power) decreases because of passing of time. So ideally if you planned to purchase a car after 5 years worth 10 lakh rupees you will have to save more then 2lakhs wvery year keeping in account inflation and other factors or you have to invest 2 lakh every year in such a way that the returns beats the time value of money and ajdust the inflation in terms of returns. Therefore for planning personal finance , time value of money is one of the most important facror to keep into account. read less
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TVM is the core of all saving and investment decisions. While the decisioning requires some comparative calculations, the actual concept is simple. Money loses it's value with time OR things become expensive with time. Understanding this concept enables you to make proper plans for financial goals.
read more TVM is the core of all saving and investment decisions. While the decisioning requires some comparative calculations, the actual concept is simple. Money loses it's value with time OR things become expensive with time. Understanding this concept enables you to make proper plans for financial goals. read less
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The time value of money helps us understand how inflation affects the purchasing power of money. Inflation is when a unit of currency today can buy more goods and services than the same unit of currency in the future.
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Akshay S
Stock Market Trader and Mentor with over 6+ years of experience in world of Financial markets
The time value of money means that a sum of money is worth more now than the same sum of money in the future. The principle of the time value of money means that it can grow only through investing so a delayed investment is a lost opportunity.
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Akshay S
Stock Market Trader and Mentor with over 6+ years of experience in world of Financial markets
The time value of money means that a sum of money is worth more now than the same sum of money in the future. The principle of the time value of money means that it can grow only through investing so a delayed investment is a lost opportunity.
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