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…
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.
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