Do You Know How Much Your Time and Money Worth?

In my profession as Accountant, we always talk about the term, Time Value of Money, especially in the field of Finance and Investing.

Time Value of Money is defined as the worth of money over a given amount of time.  It is computed to show the future value of your money based on the interest earned during the time period it is held.

Take for an instance you will save today $100, and then deposit it in the bank that gives 2% annual interest.  Given that you forgot that $100 and only remember it after a year, once you decide to withdraw it from the bank next year, your money will now be worth $102.  Let’s say, you hold that $100 untouched for the next five (5) years, on the fifth (5th) year your money will be worth $110.

Computation is as follow:

  • Dollar Saved:                                                      $100
  • Bank Interest:                                                   2% per year
  • Number of Years Saved:                                               5

Interest Earned:                                                           $100 x 2% x 5  =   $10

Total Dollar Value after 5 Years:                                                            $110

For an easy understanding, it is like you are getting paid for not spending and your payment is the interest earned.

Time value of Money is based on the concept that a dollar you have saved today will be worth more than a dollar in the future.

Why am I discussing “TIME VALUE OF MONEY” in a personal development blog?

The reason why I’m explaining the “Time Value of Money” is to teach you an important life aspect that most people forget these days.  So many people are trapped in a cycle of monthly headaches and stress because they do not know how to value their money and time.   How about you, do you know how much your money and time worth?  Have you given it a value?

Financial problems and debt is one of the HUGE worry of most people.  Sadly, a lot of people deal with it every day. But often, they choose to neglect  in solving it.

It is my hope that by making people be aware of the “Time Value of Money”, it can enlighten them in solving one of the biggest reason that stresses and make people anxious; that is DEBT and other FINANCIAL PROBLEMS.

Understanding “Time Value of Money” is the First Key Step to Your Financial Freedom

Our life has become so abundant with material things, and as such, we often get trapped into wanting and having all the “material” stuff.  But often, it leads us to tomorrow’s financial stress and anxieties.

You can live life to the fullest and enjoy the good life without being drown to debts and financial problems.  It’s even the reverse side, once you have learned the principles on how to live the good life. Once you’ve understood and applied the principles in living the good life, you can enjoy so many things in life, debt free and financially healthy.

For a final note, I’d like to share with you my life principle on money and time:

“It is not how much you earn, it’s what you do with what you earn. The same is true with time.  It’s not how much time you have, it’s how you use your time.  Remember, how far you go in life depends on how you use both of your time and money.”

Want to learn more on how to manage your finances and your life?

Lifetofullest.com has written an eBook that can guide you to enjoy the good life.  One of the key principles discussed in the eBook is how to maintain financial health (Day 16 – Managing Finances).

Start the much needed change in your finances and enjoy the fullness of a good life. Learn how in Life Begins @ 21: 21 Days to Begin a Good Life (eBook)available in Products page.

Comments

  1. Hi Lou,

    Thanks for your post. Money is such a huge issue. In. My business, I help people get a lump sum of cash for their future payments secured by property.

    One thing I try to help people see in the time value of money, is to remember inflation. The dollar today will be worth less in 15 years from now than it is today. When making investments, that’s not a bad thing to keep in mind.

    Thanks for the reminder that with patience, money will grow over time.

  2. Hi Robert, thanks for the feedback about inflation. I agree, saving alone may still get your down to financial problems because of inflation. This is why it’s important to diversify your money to different financial portfolios. This article just emphasized the importance of saving up, for most people tend to spend all the earnings nowadays. Thanks again for the additional insight! 🙂

  3. JustMy2Cents says:

    The only problem, is that your math is wrong, but still good point.

    Interest Earned is not: $100 x 2% x 5 = $10
    Interest Earned is: 100* (1 + 2% )^ 5 – 100 = $10.41.

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