Time value of money is the first lesson in Finance. When we understand and accept its truth, we become better money managers.
As soon as we step out into the world to earn money, we know that time and money are closely related. While the income at entry into a career/profession is a factor of our education/skill/knowledge our growth in career is a factor of experience, which is nothing other than the time spent in the profession. By using time productively, we create economic activity. By wasting time we lose wages and miss opportunities.
Spending time on things that are valuable is equally important. Whether it is work, family or leisure it is important to spend time on these things if we value them. Sometimes it might be necessary to delegate work that is not worth our time, so tha twe can make time for important things.Respecting others time is equally important. If we respect others time they respect ours in return.
So how are time and money related in Finance? Money in hand today is worth less than the money in hand in the future. This is because of our human nature of instant gratification. There are many things that money can buy me just now, so why should I put it away? If I put it away, it should be worth more. Banks and Financial Institutions give us a return if we keep our money with them. While the value of money when invested grows with time, the value money that stays idle erodes with time. A 100gms packet of chips, which cost Rs.10 a year ago, now costs Rs.20. So if we had just kept that Rs.10 in the wallet, we cant afford the same quantity of chips this year. This is what we refer to as inflation.
To keep pace with inflation, we need to make our money grow. This is what we call investment. Investment gives us two kinds of return – periodic return in the form of dividend/interest and one time return at the time of exit, referred to as capital appreciation. When we stay invested for long periods of time we make money by earning not just the interest on our saving, but also the interest on the interest earned. It ends up being quite a substantial amount over long periods of time. Here again is the connection between time and money.
Making time to manage our savings and investment is also extremely important. Making a habit of making lists of our income, expenses and savings pattern helps us to keep our focus on financial matters. Investing early can lead to exponential growth of our money.The hours of the day are finite and intrinsically valuable, and the most successful managers and entrepreneurs are those who not only properly manage their own time and money, but also the time of others.
Time is money
Spend time on financial matters. A weekly check on Bank accounts and a monthly look at investments is good to begin with.
Reviewing Investments is a must on an annual basis to keep your investments aligned to your objectives
Investments have to generate a return above inflation.
The longer the period of investment the higher the return.
The investments should take the form of a portfolio with different types of products to suit different needs