The Time Value of Money

time value of money

If you don't know what the time value of money is, you'll more than likely be lost in the hunt for wealth. The time value of money is a fundamental concept of personal finance. It simply means this:

"A dollar today is worth more than a dollar tomorrow."

This statement makes an assumption though. The dollar is only worth more if something you do today can increase its value tomorrow or if something tomorrow will decrease its value today. (Now is a great time to learn the Rule of 72.)

Grow it...

Investing your money can increase the value of your dollar today through capital gains and/or interest. This is why learning to invest money is critical to your wealth.

This concept reminds me of Newton's first law of motion:

"An object at rest stays at rest and an object in motion stays in motion with the same speed and in the same direction."

Money needs to keep moving, or working, in order for it to stay in the direction of increasing returns. This is why I am against paying off your mortgage early and keeping money locked into your equity. Home equity earns no interest for you. Thus, it is keeping at rest. It may be better to have it in a high interest savings account. At least it would be safe, liquid, and earning interest.

To be on the better end of the time value of money equation, invest in your business, in real estate, or even in an infinite banking system.

You want to talk about motion...the infinite banking concept keeps your money moving in multiple directions. One dollars performs multiple tasks rather than staying at rest.

It's because of this ease of motion and multiplier effect, we use infinite banking. It's one of the advantages of whole life insurance that people rarely talk about. It's probably because it's rarely known.

...but don't let it "inflate"

But let's say that the market is down, the real estate bubble is about to burst, and you are too anxious to start a business and earn or make online money. The fact is, you don't want to lose money.

You are now at the opposite end of the value equation. Keeping your money at rest can do harm as well. Inflation is an eroding factor of money and it will eat away at your wealth whether it's in motion or it stands at rest.

Don't be fooled. Inflation can still erode your wealth even if you invest it into a 401k retirement plan. Imagine that you are earning 4% in your 401k but inflation is at 5% annually. You are still losing.

How it pertains to you

The time value of money pertains to you. See, if your brains stays at rest, more than likely, your potential to succeed personally, mentally, spiritually, socially, physically, and financially, will erode. Time works against you.

Keep your brain moving. Read, study, and implement what works for you. Explore what works for others who have succeeded in your areas of interest and try implementing their strategies.

I love Ben Franklin's quote:

"Empty the coins of your purse into your mind and your mind will fill your purse with coins."

Keep the time value of money in mind when making your financial, and personal, decisions. Don't let time erode you as you stand still.

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