The Time Value of Money – A Love Hate Relationship

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by Ryan

Have you ever had a love hate relationship? It may be with a person, an object, or perhaps a job… but what about the time value of money? Perhaps I’m a bit odd, but the time value of money and I have a unique relationship in which sometimes I love it… and sometimes I hate its guts, here’s why…

The Love

I love the time value of money because it means the more I invest now when I’m young the easier it’ll be for me in the future since I’ll gain more interest on my money based on time. That is, of course if I don’t die or need a ton of money for some unforseen event…

It’s so darn powerful and the backbone to the world of finance that I can’t help but love it. If harnessed correctly the time value of money alone will change how I live my life… The time value of money could be my financial stallion riding me into the sunset of financial prosperity (nice imagery ey?). So that could be a match made in heaven. With the time value of money I can literally let my money work for me while I’m just along for the ride.

The Hate

And now for the not so loving part. Each dollar not utilized capturing the time value of money goes against what I love (in a financial sense), which means each dollar I spend is not working for me and growing. Each dollar I spend is like eating a seed that I could have planted.

Thinking in this nature means as I’m standing in an ABC store here in Waikiki I scratch my head and wonder to myself whether those packets of skittles are worth the $10 they’ll be worth in the future (delayed gratification for both my belt and wallet!)

What twenty something literally thinks… “hmmm, I could buy this candybar or I could invest it and it’ll be worth $10 someday…” strange, I know. However, I do recall reading that Warren Buffet considered his purchases in this manor since he saw each dollar he held today for it’s potential future value. This makes me feel a bit better, but it doesn’t make me hate the time value of money any less 😉 .

Maintaining a Healthy Relationship

This all goes back to balance and being confident with the amount you’re putting towards the time value of money versus what you’re spending today. Delayed gratification is pointless if you never intend to gratify yourself at all. Creating this balance I find to be a challenge without having a budget or doing some planning ahead of time. This lack of planning is probably why most people won’t really utilize the time value of money. Not enough motivation to plan for the distant future and delay gratification.

That, or it could be most people don’t see $10 when they look at a packet of skittles… either way, I love and hate the time value of money.

How do you feel about the time value of money?

Do you consider the future value of your dollar when making purchases today?

What do you think of when you look at a packet of skittles?

Image from smemon

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{ 13 comments… read them below or add one }

Andrea May 24, 2010 at 7:54 am

Hi Ryan,

I love money, when I can spend it on myself! I hate money when most of what I make goes to paying the bills… Sometimes I think that I better enjoy what little money I have now because if I don’t get to a ripe old age to enjoy it….someone else will… As far as the time value goes… it’s great to invest for the future so that you will have more to enjoy when you are older but what happens when you get older and the money is still not enough? i.e. you lose a job, have to tap into your 401k to pay expenses and then your total investment is wiped out? Since I’m trying to save more money now I do think about the future value of a dollar… I usually ask myself is this a want or a need purchase…and finally when I look at a pack of skittles I think to myself I’d rather have the peanut M&M’s :-)
.-= Andrea´s last blog ..HOW TO GET A JUMP START ON YOUR DREAMS | Savings Scoop =-.

Search Engine Viking May 24, 2010 at 8:13 am

I’ve got a love-hate relationship with money: I love spending it, and it hates to stick around…

I really like the way you phrased the concept of “delayed gratification” and how a $2 bag of Skittles now means it’ll count $10 against your wallet down the line. I hadn’t really thought spending quite like that, so thanks :)

Rock On
Lee

p.s. Your LinkWithin widget is showing my guest post (the one about dragsters), super cool 😀
.-= Search Engine Viking´s last blog ..Weekly Rockstar Blog: May 21, 2010 =-.

Investing Newbie May 24, 2010 at 3:27 pm

The time value of money works both ways, Ryan. You are focusing on how much money can grow in a given time, but what about loss? Someone that invested $1 10 years ago, would have lost nearly 35% of that dollar in today’s market. And now there’s a threat of a double dip recession, I think you’re looking at even more of a worthless dollar. This is why investing is soooo sexy! It’s a gamble you decide to take. You stand to win big or lose big and you won’t know until 10-20 years from now!

Of course the more extended the time horizon the less likely it is for one to lose money. Apparently $1 invested in 1929 was worth about $7,000 in 2008. So, maybe the person that invested their money 10 years ago, might need to wait a bit longer!

Skittles. They aren’t chocolate so I don’t have any emotion for them. Ha!

Roman Soluk May 24, 2010 at 11:15 pm

Very nice words, Ryan! I like your approach. Thanks for sharing this info!
.-= Roman Soluk´s last blog ..How to have a fabulous wedding! =-.

Everyday Tips May 25, 2010 at 3:42 am

When I see a bag of skittles, I think “I like skittles”.

I have a certain amount of money I want to save each year. The rest is free to be spent. Now, that doesn’t mean I am like the government and think ‘well I have 5 extra thousand this year, I am going to just blow it on something useless’. But, with the plan I have for our family, we should be able to retire with a certain amount of money (unless the market completely collapses) and have some enjoyment along the way. I do not think of it as such a micro level like Warren Buffett does. However, that is probably why I am not wildly rich either.
.-= Everyday Tips´s last blog ..Money Saving Tips #4: Spend Now to Save Later =-.

Summer May 25, 2010 at 5:57 am

I try to save a little every month and put it away. When I see skittles I do get hungry though!

LenciB: Falling Into favor May 25, 2010 at 8:14 am

LOL!!!!!!: Search Engine Viking’s comment is the same way that I feel:
I’ve got a love-hate relationship with money: I love spending it, and it hates to stick around…
.-= LenciB: Falling Into favor´s last blog ..Laminin =-.

Kristine May 25, 2010 at 11:33 am

It’s the opportunity cost that we’re considering. It’s the money that is lost due to one financial decision (buying Skittles) as opposed to a different decision (investing the money).

I would buy the Skittles. :) That’s me. If I’m feeling for Skittles, that’s what I’m getting. It’s the battle of utilization vs. accumulation of money.

Financial Samurai May 25, 2010 at 9:02 pm

Ryan – I actually think about money in a totally different way. Given you are in your 20’s and aren’t at your peak earnings potential, I’d spend ALL your money on things you need and want. A dollar to you now provides way more utility than when you’re making $100,000/year, for example.

It’s also much easier to save money when you’re making more. Enjoy life now! Just don’t forget to save once the money starts rolling in!

Best,

Sam
.-= Financial Samurai´s last blog ..The Katana: 200th Post And A Thank You To All Readers! =-.

MyFinancialObjectives May 26, 2010 at 4:04 pm

Wow Sam has an interesting point, though I would still save like there were MANY tomorrows!

I love the power of compounding interest. I am looking forward to the day when I make more in a year from that than I do from contributions!
.-= MyFinancialObjectives´s last blog ..XML Sitemap Upgrade, RSS Corrected, Permalinks Fixed, Link Rally! =-.

Aury (Thunderdrake) May 27, 2010 at 12:30 pm

Keeping congruent with the value of money is a difficult thing. On the one hand I love talking about it. On the other hand I can see how inherently corruptible such a trading medium is.

Incidentally, I think I’m going to buy myself a pack of skittles now.
.-= Aury (Thunderdrake)´s last blog ..Hoarding Dragon Basics – The Stock Market =-.

Darren May 27, 2010 at 9:57 am

Personally, I love the power of the time value of money. And yes, I think I am being more conscious of this future value when spending my dollars.

If you’re in the workforce, the time value of money could be the force that helps you get out of the rat race sooner.

Sam, what if you like spending your money on investments, and you receive utility and joy knowing that your money is growing?
.-= Darren´s last blog ..Working Overtime – A Blessing Or A Curse? =-.

Belmont Thornton June 24, 2010 at 3:54 am

Nice post! People really love spending money but again it depends on certain factors, we usually enjoy spending money on ourselves but hate spending it on others. I guess that’s what we call human nature.

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