money has time value essay

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What Is the Time Value of Money?

Future value basics, calculating future value, present value basics, calculating present value, present value of a future payment, the bottom line.

• Fundamental Analysis

Understanding the Time Value of Money

Pete Rathburn is a copy editor and fact-checker with expertise in economics and personal finance and over twenty years of experience in the classroom.

The time value of money is a financial concept that holds that the value of a dollar today is worth more than the value of a dollar in the future. This is true because money you have now can be invested for a financial return, also the impact of inflation will reduce the future value of the same amount of money.

Key Takeaways

• The time value of money is a financial principle that states the value of a dollar today is worth more than the value of a dollar in the future.
• This philosophy holds true because money today can be invested and potentially grow into a larger amount in the future.
• The present value of a future cash flow is calculated by dividing the future cash flow by a discount factor that incorporates the amount of time that will pass and expected interest rates.
• The future value of a sum of money today is calculated by multiplying the amount of cash by a function of the expected rate of return over the expected time period.
• The time value of money is used to make strategic, long-term financial decisions such as whether to invest in a project or which cash flow sequence is most favorable.

You have won a cash prize. You have two options available to you. A) receive $10,000 now, or B) Receive $10,000 in 3 years. Which do you choose?

If you're like most people, you would choose to receive the $10,000 now. After all, three years is a long time to wait. Why would any rational person defer payment into the future when they could have the same amount of money now? For most of us, taking the money in the present is just plain instinctive. So at the most basic level, the time value of money demonstrates that all things being equal, it seems better to have money now rather than later.

But why is this? A $100 bill has the same value as a $100 bill one year from now, doesn't it? Actually, although the bill is the same, you can do much more with the money if you have it now because over time you can earn more interest on your money.

Back to our example: By receiving $10,000 today, you are poised to increase the future value of your money by investing and gaining interest over a period of time. For Option B, you don't have time on your side, and the payment received in three years would be your future value. To illustrate, we have provided a timeline:

If you are choosing Option A, your future value will be $10,000 plus any interest acquired over the three years. The future value for Option B, on the other hand, would only be $10,000. So how can you calculate exactly how much more Option A is worth, compared to Option B? Let's take a look.

Time value of money often ignores detrimental impacts to finance such as negative interest rates or capital losses. In situations where losses are known and unavoidable, negative growth rates can be used.

If you choose Option A and invest the total amount at a simple annual rate of 4.5%, the future value of your investment at the end of the first year is $10,450. We arrive at this sum by multiplying the principal amount of $10,000 by the interest rate of 4.5% and then adding the interest gained to the principal amount:

 $ 1 0 , 0 0 0 × 0 . 0 4 5 = $ 4 5 0 \begin{aligned} &\$10,000 \times 0.045 = \$450 \\ \end{aligned} ​ $ 1 0 , 0 0 0 × 0 . 0 4 5 = $ 4 5 0 ​ 

 $ 4 5 0 + $ 1 0 , 0 0 0 = $ 1 0 , 4 5 0 \begin{aligned} &\$450 + \$10,000 = \$10,450 \\ \end{aligned} ​ $ 4 5 0 + $ 1 0 , 0 0 0 = $ 1 0 , 4 5 0 ​ 

You can also calculate the total amount of a one-year investment with a simple manipulation of the above equation:

 OE = ( $ 1 0 , 0 0 0 × 0 . 0 4 5 ) + $ 1 0 , 0 0 0 = $ 1 0 , 4 5 0 where: OE = Original equation \begin{aligned} &\text{OE} = ( \$10,000 \times 0.045 ) + \$10,000 = \$10,450 \\ &\textbf{where:} \\ &\text{OE} = \text{Original equation} \\ \end{aligned} ​ OE = ( $ 1 0 , 0 0 0 × 0 . 0 4 5 ) + $ 1 0 , 0 0 0 = $ 1 0 , 4 5 0 where: OE = Original equation ​ 

 Manipulation = $ 1 0 , 0 0 0 × [ ( 1 × 0 . 0 4 5 ) + 1 ] = $ 1 0 , 4 5 0 \begin{aligned} &\text{Manipulation} = \$10,000 \times [ ( 1 \times 0.045 ) + 1 ] = \$10,450 \\ \end{aligned} ​ Manipulation = $ 1 0 , 0 0 0 × [ ( 1 × 0 . 0 4 5 ) + 1 ] = $ 1 0 , 4 5 0 ​ 

 Final Equation = $ 1 0 , 0 0 0 × ( 0 . 0 4 5 + 1 ) = $ 1 0 , 4 5 0 \begin{aligned} &\text{Final Equation} = \$10,000 \times ( 0.045 + 1 ) = \$10,450 \\ \end{aligned} ​ Final Equation = $ 1 0 , 0 0 0 × ( 0 . 0 4 5 + 1 ) = $ 1 0 , 4 5 0 ​ 

The manipulated equation above is simply a removal of the like-variable $10,000 (the principal amount) by dividing the entire original equation by $10,000.

If the $10,450 left in your investment account at the end of the first year is left untouched and you invested it at 4.5% for another year, how much would you have? To calculate this, you would take the $10,450 and multiply it again by 1.045 (0.045 +1). At the end of two years, you would have $10,920.25.

The above calculation, then, is equivalent to the following equation:

 Future Value = $ 1 0 , 0 0 0 × ( 1 + 0 . 0 4 5 ) × ( 1 + 0 . 0 4 5 ) \begin{aligned} &\text{Future Value} = \$10,000 \times ( 1 + 0.045 ) \times ( 1 + 0.045 ) \\ \end{aligned} ​ Future Value = $ 1 0 , 0 0 0 × ( 1 + 0 . 0 4 5 ) × ( 1 + 0 . 0 4 5 ) ​ 

Think back to math class and the rule of exponents, which states that the multiplication of like terms is equivalent to adding their exponents. In the above equation, the two like terms are (1+ 0.045), and the exponent on each is equal to 1. Therefore, the equation can be represented as the following:

 Future Value = $ 1 0 , 0 0 0 × ( 1 + 0 . 0 4 5 ) 2 \begin{aligned} &\text{Future Value} = \$10,000 \times ( 1 + 0.045 )^2 \\ \end{aligned} ​ Future Value = $ 1 0 , 0 0 0 × ( 1 + 0 . 0 4 5 ) 2 ​ 

We can see that the exponent is equal to the number of years for which the money is earning interest in an investment. So, the equation for calculating the three-year future value of the investment would look like this:

 Future Value = $ 1 0 , 0 0 0 × ( 1 + 0 . 0 4 5 ) 3 \begin{aligned} &\text{Future Value} = \$10,000 \times ( 1 + 0.045 )^3 \\ \end{aligned} ​ Future Value = $ 1 0 , 0 0 0 × ( 1 + 0 . 0 4 5 ) 3 ​ 

However, we don't need to keep on calculating the future value after the first year, then the second year, then the third year, and so on. You can figure it all at once, so to speak. If you know the present amount of money you have in an investment, its rate of return, and how many years you would like to hold that investment, you can calculate the future value (FV) of that amount. It's done with the equation:

 FV = PV × ( 1 + i ) n where: FV = Future value PV = Present value (original amount of money) i = Interest rate per period n = Number of periods \begin{aligned} &\text{FV} = \text{PV} \times ( 1 + i )^ n \\ &\textbf{where:} \\ &\text{FV} = \text{Future value} \\ &\text{PV} = \text{Present value (original amount of money)} \\ &i = \text{Interest rate per period} \\ &n = \text{Number of periods} \\ \end{aligned} ​ FV = PV × ( 1 + i ) n where: FV = Future value PV = Present value (original amount of money) i = Interest rate per period n = Number of periods ​ 

If you received $10,000 today, its present value would, of course, be $10,000 because the present value is what your investment gives you now if you were to spend it today. If you were to receive $10,000 in one year, the present value of the amount would not be $10,000 because you do not have it in your hand now, in the present.

To find the present value of the $10,000 you will receive in the future; you need to pretend that the $10,000 is the total future value of an amount you invested today . In other words, to find the present value of the future, $10,000, we need to find out how much we would have to invest today in order to receive that $10,000 in one year.

To calculate the present value or the amount that we would have to invest today, you must subtract the (hypothetical) accumulated interest from the $10,000. To achieve this, we can discount the future payment amount ($10,000) by the interest rate for the period. In essence, all you are doing is rearranging the future value equation above so that you may solve for present value (PV) . The above future value equation can be rewritten as follows:

PV = FV ( 1 + i ) n \begin{aligned} &\text{PV} = \frac{ \text{FV} }{ ( 1 + i )^ n } \\ \end{aligned} ​ PV = ( 1 + i ) n FV ​ ​

An alternate equation would be:

PV = FV × ( 1 + i ) − n where: PV = Present value (original amount of money) FV = Future value i = Interest rate per period n = Number of periods \begin{aligned} &\text{PV} = \text{FV} \times ( 1 + i )^{-n} \\ &\textbf{where:} \\ &\text{PV} = \text{Present value (original amount of money)} \\ &\text{FV} = \text{Future value} \\ &i = \text{Interest rate per period} \\ &n = \text{Number of periods} \\ \end{aligned} ​ PV = FV × ( 1 + i ) − n where: PV = Present value (original amount of money) FV = Future value i = Interest rate per period n = Number of periods ​

Let's walk backward from the $10,000 offered in Option B. Remember, the $10,000 to be received in three years is really the same as the future value of an investment. If we had one year to go before getting the money, we would discount the payment back one year. Using our present value formula (version 2), at the current two-year mark, the present value of the $10,000 to be received in one year would be $10,000 x (1 + .045) -1 = $9569.38.

Note that if today we were at the one-year mark, the above $9,569.38 would be considered the future value of our investment one year from now.

Continuing on, at the end of the first year we would be expecting to receive the payment of $10,000 in two years. At an interest rate of 4.5%, the calculation for the present value of a $10,000 payment expected in two years would be $10,000 x (1 + .045) -2 = $9,157.30.

Of course, because of the rule of exponents, we don't have to calculate the future value of the investment every year counting back from the $10,000 investment in the third year. We could put the equation more concisely and use the $10,000 as FV. So, here is how you can calculate today's present value of the $10,000 expected from a three-year investment earning 4.5%:

$ 8 , 762.97 = $ 10 , 000 × ( 1 + . 045 ) − 3 \begin{aligned} &\$8,762.97 = \$10,000 \times ( 1 + .045 )^{-3} \\ \end{aligned} ​ $ 8 , 7 6 2 . 9 7 = $ 1 0 , 0 0 0 × ( 1 + . 0 4 5 ) − 3 ​

So the present value of a future payment of $10,000 is worth $8,762.97 today if interest rates are 4.5% per year. In other words, choosing Option B is like taking $8,762.97 now and then investing it for three years. The equations above illustrate that Option A is better not only because it offers you money right now but because it offers you $1,237.03 ($10,000 - $8,762.97) more in cash! Furthermore, if you invest the $10,000 that you receive from Option A, your choice gives you a future value that is $1,411.66 ($11,411.66 - $10,000) greater than the future value of Option B.

If your compounding period is less than a year, remember to divide the expected rate by the appropriate number of periods. For example, imagine a situation that uses 6% annual interest with $100 cash flow every month for one year. For this situation, you would divide the rate by 12 and use 0.50% as the discount rate. This is because the number of periods would be 12, the number of cash flow periods.

Let's up the ante on our offer. What if the future payment is more than the amount you'd receive right away? Say you could receive either $15,000 today or $18,000 in four years. The decision is now more difficult. If you choose to receive $15,000 today and invest the entire amount, you may actually end up with an amount of cash in four years that is less than $18,000.

How to decide? You could find the future value of $15,000, but since we are always living in the present, let's find the present value of $18,000. This time, we'll assume interest rates are currently 4%. Remember that the equation for present value is the following:

 PV = FV × ( 1 + i ) − n \begin{aligned} &\text{PV} = \text{FV} \times ( 1 + i )^{-n} \\ \end{aligned} ​ PV = FV × ( 1 + i ) − n ​ 

In the equation above, all we are doing is discounting the future value of an investment. Using the numbers above, the present value of an $18,000 payment in four years would be calculated as $18,000 x (1 + 0.04) -4 = $15,386.48.

From the above calculation, we now know our choice today is between opting for $15,000 or $15,386.48. Of course, we should choose to postpone payment for four years!

What Is Time Value of Money?

Time value of money is the concept that money today is worth more than money tomorrow. That is because money today can be used, invested, or grown. Therefore, $1 earned today is not the same as $1 earned one year from now because the money earned today can generate interest, unrealized gains, or unrealized losses.

How Do I Calculate Time Value of Money?

The time value of money has several different calculations depending on when the cash flow is being received and in which direction you want to value money. The direction depends on whether you want to know the present value (the value today) or the future value (the value at a date in the future).

In addition, there are different formulas depending on the cash flow. You can either calculate the present value or future value of a single lump sum or a series of payments (i.e., $5,000 received every year for the next 5 years).

In general, you calculate the time value of money by assessing a discount factor of future value factor to a set of cash flows. The factor is determined by the number of periods the cash flow will impacted as well as the expected rate of interest for the period.

What Is the Difference Between Present Value and Future Value?

Present value is the time value of money for a series of cash flow that calculates the value of the money today. For example, if you want to find the value of $1,000 to be received one year from now or the value of $2,500 to be received each month for the next two years, you are trying to find the present value.

Alternatively, future value is time value of money concept of finding the value of a series of cash flows at a point in time in the future. You'd be calculating the future value if you want to know what your $500 may be worth in 10 years. You'd also be finding the future value if you want to find out what your retirement balance will be if you contribute $250 every month for 10 years.

Why Does Time Value of Money Matter?

The time value of money helps decision-makers select the best option. Time value of money equalizes options based on timing, as absolute dollar amounts spanning different time spans should not be valued equally.

Businesses often use time value of money to compare projects with varying cashflows. Businesses also use time value of money to determine whether a project with an initial cash outflow and subsequent cash inflows will be profitable. Companies may also be required to use time value of money principles for external reporting requirements.

Individual investors use time value of money to better understand the true value of their investments and obligations over time. The time value of money is used to calculate what an investor's retirement balance will be in the future.

These calculations demonstrate that time literally is money—the value of the money you have now is not the same as it will be in the future and vice versa. So, it is important to know how to calculate the  time value  of money so that you can distinguish between the worth of money related options offered to you now and in the future. These options could be investment opportunities, loan transactions, mortgage payment options, or even charity related donations. Whenever, money coming or going, at some point in time, is involved, time value of money should be considered.

Financial Accounting Standards Board. " Leases (Topic 842). "

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Time Value Of Money Essay Example

Type of paper: Essay

Topic: Management , Finance , Investment , Money , Banking , Learning , Future , Time

Words: 1400

Published: 01/21/2020

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introduction Time value of money is an important concept of finance and financial management. It has been said that the present consumption reveals more value than a future consumption and it is because of the fact that consumers have two options; either to consume it right away or forego it to avail it in future by investing the present amount (Houston, and Brigham, 2009). This report defines and highlights the importance of time value of money and also discusses the importance of time value of money for the financial managers. The report also calculates present value of money as well as the future value of money at different interest rates and duration. The report calculates the present and future value of annuities which are the annual stream payments. The report then discusses the main learning outcomes from this module.

Money losses its value with the passage of time particularly because different factors and inflation is the most important factor (Gitman, 2003). The value of $100 today is more than the value of $100 after 5 years because inflation would depreciate the value of $100 and fewer goods and services can be purchased from $100 after 5 years then today. In other words, it can be said that the value of $100 will have more buying power today than $100 after 5 years. So more things or value can be derived from $100 today than in 5 years from now. Thus, it shows that the money changes its value with the passage of time and as time passes, the value of money decreases and this concept is defined as time value of money (Besley, & Brigham, 2007).

Importance of time value of money to financial managers

Time value of money is an important concept in business as well. It is significant for financial managers need to understand the concept of time value of money because it influences the returns that the company would be making in the years to come. The financial managers not only need to understand the present value of future cash flows, but also the future values of a present investment they are making. Thus, they need to understand the concept of discounting (calculating the present value) as well as compounding (calculating the future value). There are different reasons why the financial managers need to understand and use the concept of time value of money and one of the main reasons is while making the investment decisions. The concept of time value of money has been used very frequently by investors and financial managers. The reason to use the concept of time value of money while making investment decisions is to analyze the worth of the investment. If the project is not going to yield sufficient returns or the present value of the future returns are not more than the present value of the investment then there is no point of making the investment. This concept is generally termed as Net Present Value of the investment (NPV) and it is used on a regular basis to analyze the worth of the project or investment decisions. Therefore, this is one of the reasons why investors and financial managers should understand the concept of time value of money (Gitman, 2003). Another important reason why the financial managers need to know and understand the concept of time value of money is that while raising funds they need to know the cost they would be paying to the bank or the financial institution or bond holders etc and by knowing the cost of the funds and the future value that would be paid to them, financial managers would be able to identify the present value of the future cash flows and then make an appropriate decision (McLaney, 2009).

Calculating future values

Formula to calculate the future values FV=PV* 1+in a. $150,537.19 if invested for seven years at a 5% interest rate b. $237,891.22 if invested for eight years at a 3% interest rate c. $320,891.12 if invested for ten years at an 11% interest rate d. $520,520.22 if invested for thirteen years with a 13% interest rate

Calculating present values

Formula to calculate the present values PV=FV/ 1+in a. $562,126.17 to be received seven years from now with a 5% interest rate b. $225,003.21 to be received six years from now with a 6% interest rate c. $321,567.35 to received five years from now with an 18% interest rate d. $63,000.05 to be received twelve years from now with a 5% interest rate present value of AN ANNUITY

Formula to calculate the present value of an annuity

PV=PMT*[11+in]

FUTURE Value of an annuity

Formula to calculate future value of an annuity FV=Cash flows*[1+in-1)i]

Learning from Module 2 Case Assignment

Module 2 case assignment has been helpful in making me learning a lot of things. The module 2 has helped me in knowing the value of money at the present time and also I have learnt that the value of money tends to decrease as the time goes on. The module has helped me in learning about the concepts that different factors such as inflation can influence the value of the money and thus the purchasing power or the buying power of the consumers decrease if the money is not spent today. Therefore, there are two options for the consumers; either they can invest the money to increase its value. For instance, investing the money in a bank would yield 5% annually and this would increase the money, though, not the value of money. So the consumer can have similar buying power in next year when he or she plans to spend. Not only this, I have calculated present and future values and thus, it can be said that this module has helped me in making basic calculations related to the present value and future value of money. Similarly, the module has been helpful in making me learn about the impact of the interest rate and the impact of the life of the investment can influence the value of the money. The module asked to identify the present value as well as the future value at different interest rates and at different durations of investment and thus, it helped me in analyzing and identifying the impact that these two factors make on the present value or the future value of the investment. So, I not only have learnt how to calculate the present value and future value, but I have also learnt and have understood these concepts, their implications and practical applications. In addition to this, the module has helped me in knowing how financial managers and business owners need to understand the concept of time value of money and how to use it in an efficient manner. There are different decisions that financial managers need to make and these decisions can be influenced because of the time value of money, so it is important for them to understand and use this concept.

Time value is an important concept in financial management and this report highlighted and discussed the importance of time value of money as well as the significance of understanding the concept of time value for the financial managers. The report identified the main reasons why the financial managers need to understand and learn these concepts. Moreover, I have also calculated the present and future value of cash flows along with calculating present and future values of annuities in this module. The last section of the report discusses about the main learning that I have learnt from this module.

Besley, S., & Brigham, E. (2007). Essentials of Managerial Finance, 14 edn. USA, Thomson Higher Education. Gitman, L. (2003). Principles of Managerial Finance. Boston, Addison-Wesley Publishing. Houston, F., and Brigham, F. (2009). Fundamentals of Financial Management. Ohio, South-Western College Pub. McLaney, E. (2009). Business Finance: Theory and Practice. Pearson Education: New Jersey.

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• What is the time value of money? 

The mathematics of TVM

Applications of tvm, how to calculate tvm.

• TVM in personal finance 
• Challenges and considerations 

Understanding the Time Value of Money

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• The time value of money (TVM) is the concept that a dollar today is worth more than a dollar tomorrow.
• Understanding TVM allows you to evaluate financial opportunities and risks.
• The principle underlies almost every financial and investing decision you make.

The time value of money (TVM) is the concept that the money you have in your pocket today is worth more than the same amount would be if you received it in the future because of the profit it can earn during the interim. For example, let's say you can either receive a $100,000 payout today or $10,000 per year for the next ten years totalling $100,000. Ignoring taxes, the $100,000 payout today is worth more, according to the TVM principle, because you can put your money to work. For example, you can invest in stocks, buy real estate, or put it in a certificate of deposit (CD) .

Understanding the time value of money can help you in making decisions ranging from which job has better salary terms, what's a good rate for a loan, or whether the investment you're considering has good growth potential.

What is the time value of money?  

Definition and basic principles .

The time value of money is an important concept to keep in mind because your money, once invested, can grow over time. Even if you were to just put it into a CD or savings account, the money can earn compound interest , and the impact of compounding on investment growth can be significant. 

On the flip side, money that is not invested will lose value over time. Just think about what you could buy for $1 when you were a child compared to what that same $1 would get you today. This is because inflation and loss of potential earnings erode the value of your dollars. If you keep your money under your mattress for 10 years, not only will it be worth less because of inflation, but you'll also miss out on the interest it can earn when invested. 

"So many young people are so busy juggling life, they are missing out on the compounding returns of investing smaller amounts of money," says Jeff Rose, founder of GoodFinancialCents.com . "Say, for example, a 25-year-old were to invest $50 per month today. They would have to invest 3-4 times that to make up the difference if they procrastinated until they were 35."

TMV is a fundamental concept that provides the foundation for virtually every financial and investing decision. From taking out a loan to negotiating a salary or making a purchase decision, use the time value of money to evaluate the best financial course of action.

To calculate TVM, you need a handful of variables. 

Present value (PV) 

Present value (PV) is the value that a future sum of money (or combination of income streams) has right now. For example, the present value of $1,050 that you will earn one year from today with an interest rate of 5% is $1,000. 

Future value (FV) 

Future value (FV) is the value that a current sum of money (or asset) will have at a predetermined future date based on an expected return (or rate of growth). For example, the future value of $1,000 one year from today based on a 5% annual growth rate is $1,050. 

Discount rate 

The discount rate is the rate of return used to determine the present value of an asset or investment. Another way of putting this is that the discount rate is the return an investor would miss out on by accepting an amount in the future as opposed to accepting it immediately. 

Compounding frequency

The compounding frequency, or how often interest is assessed, can have a significant impact on future value. If an investor puts their money into an interest-bearing asset, this interest can be assessed on a monthly or quarterly basis, for example. 

Investment analysis 

The TVM can be harnessed when evaluating different investments. For example, interested parties can use TVM when valuing bonds , as these securities have a par value, meaning a price that issuers have promised to pay the buyer at a specific point in time. Further, many bonds make regular (coupon) payments to their owners. Armed with this information, interested parties can calculate a bond's present value. 

Loan amortization 

The TVM plays a key role in amortization, which is basically the process of lowering the book value of a loan over time. Lenders need to calculate payment schedules when extending credit to borrowers. A dollar lent to a borrower today is worth more than a dollar paid back either tomorrow, next month or a year from now. 

Retirement planning 

When planning for retirement, investors can benefit from compound interest, which refers to interest that is charged on top of interest that has already built up. For example, if an investor puts $100 into an asset that pays 5% in interest every year, it will be worth $105 at the end of the first year. However, at the end of the second year, it will be worth $105 (1.05) or $110.25. 

Formulas and examples 

Practical examples of TVM calculations can help provide clarity for interested parties. We'll use one here. Let's say someone would like to buy your car and they can offer you $15,000 for it today or $15,500 if they can pay you two years from now. TVM teaches us that $15,000 today is worth more than $15,500 in two years. 

Here's the basic formula used for this example:

• PV is the present value of money.
• i is the interest rate or other return that could be earned.
• t is the number of years to take into consideration.
• n is the number of compounding periods of interest per year.

This will help you determine how much money you will have if you took the $15,000 and invested it today or if you waited two years for the $15,500. 

TVM in personal finance  

Budgeting and saving .

When budgeting , individuals should keep in mind that every dollar they avoid spending can be saved, which can in turn be invested in something that will generate a positive return over time. Any dollar saved and invested today will be worth more than the same dollar saved and invested tomorrow. 

Debt management 

When managing debt , individuals should keep in mind that any dollar eliminated from their debt today will be less costly than the same dollar eliminated from their debt tomorrow (or further down the line). As a result, many individuals can benefit from focusing on frugality, keeping their expenses down and using whatever excess funds they have to reduce their existing debt load. 

Planning for future expenses 

Individuals can use the TVM to their advantage when planning for future expenses. More specifically, they can invest now in assets that will rise in value over time so that they can make these purchases. 

Challenges and considerations  

Inflation and its impact on tvm .

Inflation has a negative impact on the TVM, because it causes the purchasing power of money to decrease over time. In other words, a dollar will be worth less in the future than it is today. 

Interested parties can overcome the inevitable deterioration of their purchasing power by investing in assets that generate positive returns. 

Estimating future costs and returns

 Nobody knows for certain what will happen in the future. For example, you have no idea how much the car you want to buy now will cost five years from now. It is impossible to know how much the components, for example steel, will rise in value. 

When it comes to investment, risk is an inherent factor. You never know for certain what returns a specific investment will provide. While a bond may have a par value, the issuer of that bond could potentially default and never pay you back the amount you invested in the first place. 

The time value of money is an important concept to understand for personal finance. It can help you decide how much to budget, evaluate a job offer, figure out if a loan is a good deal and help you save for the future. TVM showcases why your money loses value over time because of inflation. 

Apply the TVM formula to any loans you have to determine if it's better to pay them off or invest. You can also use it to see how increasing your retirement contributions can affect the future value of your dollars. It's a great tool that gives you information that can help you make smarter financial decisions.

The time value of money is crucial because it allows individuals and businesses to evaluate how much money will be worth in future terms, which can in turn enable them to make better-informed saving, investment and borrowing decisions. 

Inflation has a negative impact on the time value of money, because it decreases the purchasing power of money over time. A dollar will purchase more today than it will in the future. 

Being aware of the time value of money can certainly motivate an individual to build up personal savings, as money saved today will be worth more than money saved tomorrow. 

Simple interest is assessed on the principal, for example the amount saved, whereas compound interest is assessed on the original principal and all interest payments that have been made thus far. 

You can pick the right discount rate by harnessing the risk-free rate, expected inflation and the risk premium for the investment in question. As a general rule of thumb, the higher the perceived risk, the greater the discount rate needs to be to compensate for that risk. 

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Time Value of Money, Essay Example

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The concept of time value of money implies that a nominal or stated amount of money has more value now than in the future because inflation erodes the value of money over time as goods and services usually become expensive over time. Thus, for a stated amount of money to maintain its value, the interest rate has to equal the inflation rate and an interest rate greater than inflation rate means the money will grow over time and an interest rate less than the inflation rate means the opposite will be true. Thus, it only pays to lend or deposit money if the interest rate is at least equal to the inflation rate.

An example that demonstrates the time value of money may be a decision regarding a trip to Spain. I have determined that I can either go to Spain during Christmas this year or in 2014. If I go in 2014, I expect the trip to cost 2 percent more than what it may cost this year. My total budget for the trip is $1000. In other words, I would have to spend $1020 in 2014 but the opportunity cost of going on trip this year would also involve the annual 3 percent interest I could earn on $1000 by depositing in a local bank’s checking account. If I do so, the trip may prove to be cheaper next year because while the cost of the trip would go up by 2 percent, my interest income would be 3 percent which means the trip next year may actually be cheaper by 1 percent or $10.

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The Time Value of Money

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The Value of Time: How Much is Your Time Really Worth?

Not all uses of time are equal, and this simple truth can make a big difference in life. People who spend their time doing more profitable work make more money. People who spend their time investing in others build better relationships. People who spend their time creating a flexible career enjoy more freedom. People who spend their time working on high-impact projects contribute more to society. Whether you want more wealth, more friendship, more freedom, or more impact, it all comes down to how you spend and value your time.

If you’re like me, you probably want the things listed above (friendship, freedom, impact) and others too (health). But you can’t have everything at once, so you need to understand how to effectively manage the tradeoffs that you face on a day-to-day basis.

This article explains how to figure out what your time is worth and use that information to spend your time more effectively. Understanding how to get the most out of your time starts with knowing—in exact terms—what your time is worth.

The Value of Time: What is One Hour Worth?

A few weeks before I began writing this article, I was shopping for a small travel bag. After much searching I found one that I liked and, at just $19, it was very affordable. But there was one problem: the bag was made by a company in the United Kingdom and it cost $45 to ship it to the United States.

I was immediately turned off by the idea of paying $45 to ship a $19 bag, so I searched for retail stores. The company had a physical location in New York City and I was already planning to visit the city a few weeks later. I looked up the store location and realized that it would take me about one hour to go out of my way and stop at the store during my trip.

That’s when I thought of the question that prompted this entire article: “Was one hour of my time worth $45?”

Should I save time and pay $45 to get the bag shipped to me? Or should I save cash and spend one hour of my time going to pick it up in person? I had no idea if going to the store or paying extra for shipping was a better use of my time and money.

The Time vs. Money Dilemma

At some level, we all have an internal gauge for how much our time is worth. For example, if someone offers to pay you $0.07 for one hour of work, you would immediately decline. Meanwhile, if someone offers to pay you $7,000 for one hour of work, you would immediately accept.

On extreme ends of the spectrum, it is easy to know if a task is worth your time. As you move toward the middle of the time-value spectrum, however, it becomes less clear if a particular task is worth your time or not. And this is the problem: most of life is lived in the gray zone of the time-value spectrum.

For example:

• Should you buy the nonstop flight and save two hours or get the flight with a stopover and save $90?
• Should you pay your neighborhood teenager $20 to mow your lawn so you have an extra hour free on the weekend?
• Should you spend this week working with a client that will pay you $2,000 right away or working on a business idea that could generate $20,000 over the next year?

We make choices like these everyday, but most people base their decisions on gut feelings or guesswork and never calculate what their time is actually worth. Everyone has an hourly value, but very few people can actually tell you what that number is. Until recently, I was no exception. 1

How to Calculate What Your Time Is Really Worth

My time vs. money dilemma prompted me to reach out to every expert I could find on the subject. I talked to entrepreneurs, productivity consultants, executive coaches, and even professional poker players about the best ways to determine how much my time was worth and how to make better decisions based on that information. 2

Then, I tracked every hour I spent over a three-month period and calculated the value of each hour using six different equations. Don’t worry. I’ve distilled all of this research and experimentation into a fairly simple process, which I’ll cover right now.

The remainder of this article is divided into two parts.

• Part I is fast and easy, and covers everything most people will need. Within 15 minutes, Part I will help you develop a reasonable estimate of what your time is worth and you’ll be able to make more informed decisions because of it. I recommend everyone read Part I.
• Part II is time-consuming, but valuable. In particular, entrepreneurs and executives will find Part II useful. Part II builds upon Part I and helps you assess the expected value of different uses of time, so you can make better strategic decisions that will pay off in the long-run.

Before we dive into Part I, I’d like to share a free spreadsheet I created with examples of every equation in this article. You can use this spreadsheet to plug in your numbers and get an immediate value for your time. I will be referring to this spreadsheet throughout the remainder of this article.

Free Download: The Time-Value Spreadsheet Click here to get your copy.

Part I: Realized Income Methods

We will start by using Realized Income Methods to calculate the value of your time. These calculations are based only on income you have actually received (or realized), hence the name Realized Income Methods. These calculations will help you make better decisions about how to spend money on day-to-day purchases. (i.e. Should I pay $45 for shipping or should I drive to the store?)

To get started, you need two numbers:

• The amount of time you spend to earn money.
• The amount of money you earn during that time.

Let’s talk about how to measure these two factors and come up with a quick estimate for the value of your time.

Step 1: How to Track Your Time

The first step is to measure the total amount of time you invest to earn money, not just the hours you are physically at work. For example, if you spend one hour commuting to work each day and eight hours at work, then it cost you nine hours to earn money that day. Similarly, you should add in any time you spent working on a side hustle or dropping your kids off at daycare. Using these numbers, we are trying to get a complete picture of the total amount of time you invest each year to earn money.

If you struggle to come up with an estimate for your time, you’re not alone. Most people only have a vague sense of where their 24 hours go each day. If you’re unsure how much time you spend working, I recommend using 2,500 hours per year as a starting point.

Here’s why:

Let’s say you spend 10 hours per day either at work, commuting to work, or doing tasks related to work. With a five day workweek, that’s 50 hours per week. And if you work 50 weeks per year (2 weeks off for vacation), then that’s 2,500 hours per year. I’ll leave it to you to make adjustments based on your specific circumstances, but for most full-time employees or entrepreneurs, I think 2,500 hours will get you in the right ballpark.

Tracking Time: How I Did It

As an online entrepreneur, I spend most of my time working on the computer. When I started measuring my time, I installed a software tool called RescueTime . RescueTime records the exact amount of time I spend on each task: how much time I spend reading each website, using each software program, browsing social media, and so on.

After I collected three months worth of data, I compiled numbers from other applications to round out my estimates. For example, I added up all of my listening time on Audible to estimate how much time I spent “reading” books. 3

Using the numbers from RescueTime and a few reasonable estimates, I found that I spend about 2,742 hours working per year.

Because of RescueTime’s category-by-category breakdown, I was also able to group my time into specific areas like writing, reading, website design, marketing, and so on. This detailed breakdown isn’t necessary, but it will come in handy during Part II of this article. For now, all you need is a reasonable estimate of the total amount of hours you spend to earn money each year.

Step 2: How to Track How Much Money You Earn

The second factor you need to know is how much money you earned during the time you spent working.

This is pretty simple. If you’re an hourly worker or a salaried employee, just look at your latest paycheck and multiply that by the number of paychecks you receive per year. If your pay hasn’t changed much this year, you can also look at your tax return from last year and just use that number. You should also include money from side hustles and freelancing gigs because the time you spent on those activities is included in Step 1.

The number we are trying to calculate is your take-home pay. This is the amount of money you have left after deducting taxes. For most employees, taxes are withheld from your paycheck, so your take-home pay is basically what you get paid. If you are a business owner, however, you should deduct taxes and business expenses from your top-line revenue. 4

Tracking Money: How I Did It

I use a service called Bench Accounting to track my business income and expenses. Bench is an online bookkeeping service that automatically pulls the data from my business accounts and then a bookkeeper compiles everything into tax-ready financial statements. With a few clicks, I can see how much money I’ve earned during the previous month, quarter, or year. 5

If you are also an entrepreneur, I recommend using yearly earnings for these calculations because small business income can fluctuate (sometimes drastically) from month to month. Looking at your earnings over a longer time period helps to smooth out these inconsistencies and provide a more realistic value of your time.

Step 3: Calculate the Value of Your Time

Finally, divide your total money earned (Step 2) by your total time spent (Step 1).

For example, let’s say you spend 2,500 hours per year earning money:

• If you make $12,316/year, your time is worth $4.93/hour. This is the 2014 poverty line for an individual in the United States. 6
• If you make $46,226/year, your time is worth $18.49/hour. This is the 2014 median income for women in the United States. 7
• If you make $62,455/year, your time is worth $24.98/hour. This is the 2014 median income for men in the United States. 8
• If you make $100,000/year, your time is worth $40.00/hour.
• If you make $1,000,000/year, your time is worth $400.00/hour.

Again, all of these numbers assume that you are working 2,500 hours per year. Obviously, the numbers will shift if you work more hours or fewer hours.

Are These Numbers Accurate?

When I first calculated these numbers I was surprised. The value of an hour of my time was much lower than what I thought it would be.

Think about how many freelancers charge $40/hour, but don’t make $100,000 per year. Or consider how many consultants charge $400/hour, but don’t make $1,000,000 per year. How can this be? The answer is these people are only being paid $40/hour or $400/hour for some of their hours, not all of their hours. When we divide their total income by the total time spent working, the value of each hour is much less than what they charge for a given hour of work with a client.

Furthermore, although we might know what we would charge per hour, we rarely calculate how much time goes into earning money outside of our working hours. By accounting for all of the time we invest to earn money, we get a clearer picture of what our time is actually worth—and it is usually much less than what you would charge for an hour of work on your job.

Now, if you’re like me, you’d like to verify the accuracy of this first calculation. There are a few quick ways to check to see if your hourly value is accurate. Let’s cover them now.

Checks and Balances

The method we just used to calculate the value of time is called the Take-Home Pay Method because it is based on your take-home pay. There are two other types of Realized Income Methods that we can use to check the accuracy of your Take-Home Pay Method. I’ll explain them briefly below, but I think the easiest way to understand them is to look at the examples in Step 3 of the Time-Value Spreadsheet .

Market Rate Method – The Market Rate Method is the first way to check your numbers. The Market Rate Method is the rate you could expect to earn if you were hired by another company for a job you were qualified to perform. For example, I spend a lot of my time writing, so I could be hired for a Content Creator position. I also spend time growing the business, so I could probably be hired for a Business Development role. I looked up the salary for each role I was qualified for and then divided by the amount of hours I work to get another estimate for the value of my time. You can think of this method as what your time is worth on the job market.

Cost-Based Method – The Cost-Based Method is another way to verify your numbers. The Cost-Based Method is the rate you would pay someone else to do the work that you do. In other words, imagine you are the boss and you have to hire someone to do your job. I started by dividing my job into specific tasks (writing, marketing, etc.) and estimating the amount of time I spent on each task. Then, I plugged in what I would be willing to pay someone to do that task full-time. Then, I calculated a weighted average of all of the tasks to come up with an overall rate that I would be willing to pay someone to do the work that I do each day. Finally, I divided what I was willing to pay by the total number of hours worked. 9

Once I have numbers for all three methods, I calculate the average value of my time. I figure that I might be estimating high for one method or low for another, but the value of time is probably accurate when we take the average across all three methods. Again, you can see each method in the Time-Value Spreadsheet .

How to Use This Information

We have now completed Part I. With the calculations above, we were able to determine a quick and accurate estimate of what your time is worth. Now we can narrow the zone of uncertainty and make better decisions.

• If you know your time is worth $25 per hour, then you should never wait in line for 30 minutes to get a $10 gift card.
• If you know your time is worth $60 per hour, then you should always pay $49 for shipping instead of spending one hour shopping at the store.
• If you know your time is worth $80 per hour, then you should always buy the direct flight that saves you two hours even if it costs $150 more than the flight with a stopover.

Once you know, in dollars and cents, how much an hour of your time is truly worth you can make better decisions on a daily basis.

At this point, we know your time is worth at least the number you calculated in Part I because Realized Income Methods only account for income you have already earned. Ready to see if your time is actually worth more? Let’s dive into Part II.

Part II: Expected Value Methods

This brings us to the second way to calculate the value of your time: Expected Value Methods. These calculations are based on the value you expect a given hour of work to create in the long-run.

Expected Value Methods can help you make big, strategic decisions about where to spend your time. What projects should your business focus on this year? Which uses of time aren’t effective and should be eliminated from your daily work routine? Should you start a business that could payoff big time in ten years, but won’t make any money right away or work a stable job with a reliable income? What is the best way to manage these tradeoffs?

Let’s start with the simplest type of Expected Value Method.

The Growth Multiple Method

There is a simple way to account for the expected value of your decisions. Take your net income from the previous year and multiply it by a reasonable growth multiple.

The key, of course, is selecting a reasonable growth multiple. For example, my business doubled from last year to this year, so I chose 2x as the growth multiple. With this method, we are essentially saying, “Your actions from this year will continue to drive growth over the next 12 months, so the true value of your time is actually higher than your realized income indicates today.”

The Growth Multiple Method is an easy way to estimate how the work you are doing today will pay off in the long-run, but it doesn’t tell you anything about how to use your time more effectively. For that, we need to use the full Expected Value Method.

The Expected Value Method

The Expected Value Method is the final, and most difficult, way to calculate the value of time. I’m going to try to explain this in the simplest way possible, but I think the easiest way to understand it is to look at the calculations in Step 4 of the Time-Value Spreadsheet .

Here’s the basic logic:

• Start by breaking your time out by task. The more detailed you can be about each use of time, the better you can distinguish which areas drive the most value.
• Find a unit of measurement that connects the tasks you work on with the income you earn. For most business owners, this means you need to know the value of a “lead” in your business. In my particular case, I use email subscribers because I know the average lifetime value of a new email subscriber and most of my tasks can be linked to getting more email subscribers in some way.
• Estimate the value of each task. Let’s say I spend one hour working on a task that results in 50 new email subscribers. If the lifetime value of each subscriber is $1, then the expected value of that task is $50/hour. Repeat this type of expected value estimate for every task you work on.
• Add all of the expected values together to determine the total expected value of your time.
• Add extra variables as desired. Expected Value Methods can be as complex as you want to make them. You can account for factors like how much happiness a particular task brings to your life or how likely it is for this hour of work to continue to payoff years from now.

Expected Value calculations are highly individualized and you’ll probably have to wrestle with the equations for awhile to get them to work for you. Again, I think it’s easiest to see this worked out in numerical form. You can see all of the factors involved in this calculation in Step 4 of the Time-Value Spreadsheet .

Additional Notes

There are a lot of extra thoughts that go on behind the scenes of these calculations. Here are some additional factors I keep in mind when considering the value of time.

Misguided Success – Don’t waste your time becoming successful at the wrong thing. Simply understanding the value of your time is helpful, but you need to know what you want out of life to get the most accurate idea of the value of your time. Too many people chase money or power or approval because everyone around them does the same. What if that’s not what you really want? Sure, you can find ways to increase the value of your time, but what if you’d rather have more free time than more cash? This is where knowing your core values , doing an Integrity Report , and getting clear about what is most important to you is useful.

Tradeoffs and Opportunistic Addition – Bill Gates has been named the richest person in the world more than a dozen times. In 2015, he ranked number one yet again with an estimated net worth of $72.7 billion. According to one analyst, “With a worth of $72 billion, a 6% rate of return would earn Gates roughly $114.16 per second he is alive, making it a poor investment for Bill Gates to bother picking up a $100 bill if he dropped it.”

Although interesting and quotable, the idea that it isn’t worth it for Gates to bend down and pick up a $100 bill off the ground is incorrect. Why? Because picking up the $100 bill does not prevent Gates from earning $114.16 at the same time. He will be paid whether he picks up the $100 bill or not. In fact, by picking up $100 Gates will earn $214.16 during that particular second instead of his normal $114.16. 10

Picking up a $100 bill is not a tradeoff that prevents Bill Gates from earning money. It is an opportunistic addition on top of the money he is already earning. Opportunistic Addition refers to choices that would decrease the value of your time if you spent all of your time on them, but increase the value of your time if you do them at opportunistic moments. For example, consider an author who also does speaking engagements. If they spent all of their time speaking, then they would decrease the value of their time because they wouldn’t write any new books, they would gradually become irrelevant and their speaking rate would decrease. However, by doing speaking engagements every now and then—say, once or twice per month—many authors can add thousands of dollars to their bottom line while still having plenty of time to write new books.

Non-Negotiable Free Time – One of the dangers of calculating the value of time is that you end up convincing yourself to work another “productive” hour so that you’ll increase the overall value of your time. According to an article in the Wall Street Journal , “Some researchers say assigning an economic value to time risks harming people’s quality of life. Those who are encouraged to focus solely on the dollar value of time tend to feel impatient and pressured, says Jeffrey Pfeffer, a professor of organizational behavior at the Stanford Graduate School of Business. They work more and spend less time in rewarding activities such as volunteering or enjoying music.”

For my part, I decided that I would track my free time to see how many hours I was using for leisure vs. work, but I wasn’t going to place a dollar value on that time. Instead, I elected to say that my free time was non-negotiable. Having free hours where I could relax and decompress made it possible for me to be effective during the working hours that remained. You need to value your free time, downtime, and leisurely activities that provide whole health and wellness to your life.

Should you work another hour? – Wondering if you should work another hour? Here’s a good rule-of-thumb I learned from Sebastian Marshall: Consider each hour of your day. 9AM to 10AM, 10AM to 11AM, and so on. On average, do you make net positive or net negative decisions during that hour? For example, if you work late, does the hour between 9PM and 10PM lead to positive outcomes on average? Or does that hour include more mistakes than accomplishments? Does that hour include more procrastination than productivity? If it’s a net negative hour on average, then you should stop working. Working hard on a project is good until the next hour of work burns you out more than it produces something valuable.

Happiness and Meaning – If you want, you can account for factors like how much happiness or meaning a task adds to your life. However, rather than build these variables into my actual equation, I decided to rank them for each task from 1 to 10 based on how fulfilling it was for me. I didn’t use these rankings in any equations, but they can act as a tiebreaker between tasks that are close in Expected Value.

Where to Go From Here

Calculating the true value of time is actually much harder than it sounds and far more powerful than it seems.

The value of your time will likely change every year, perhaps even faster. The methods I have laid out in this article are flexible and adaptable. As you spend more time in a particular area or earn more income, you can simply plug the new numbers into the spreadsheet and get an updated value of your time.

My hope is that the strategy I’ve shared here will remain useful for you as time goes on.

It is important to realize that I’m talking about what your time is actually worth and not what you charge per hour. Many consultants or freelancers might say, “I know exactly what my time is worth. My hourly rate is XYZ.” We’re talking about two different things. Unless you are getting paid your hourly rate every hour of every day, then the value of your time is not the same as your hourly rate.”

I especially need to thank my friend Billy Murphy, who generously volunteered a large portion of his time to help me figure out what mine was worth.

I also calculated the average listening time per audiobook and used that number as an estimate for how long it took me to read a print book. Then, I multiplied my average book time by the number of print books I read. Finally, I combined the total print book time and the total audiobook time to get an estimate for my total reading time over those three months.

If you want to be ruthless, you can also subtract costs that are strictly work related. For example, subtract the cost of gas needed for your commute or the amount of money you spent buying suits for work.

At the end of the year, I send these tax-ready documents to my accountant and he finishes my taxes for the year without much input on my end. It’s about as painless as paying your taxes can be.

Data from “ Income and Poverty in the United States: 2014 ” by Carmen DeNavas-Walt and Bernadette D. Proctor. United States Census Bureau. September 2015.

50 percent of women make more and 50 percent of women make less. This data is from “ Income and Poverty in the United States: 2014 ” by Carmen DeNavas-Walt and Bernadette D. Proctor. United States Census Bureau. September 2015.

50 percent of men make more and 50 percent of men make less. This data is from “ Income and Poverty in the United States: 2014 ” by Carmen DeNavas-Walt and Bernadette D. Proctor. United States Census Bureau. September 2015.

I find the Cost-Based Method tends to deliver the lowest estimated value of your time. I like this because I think it helps overcome our natural bias to overvalue ourselves. I find that I am inclined to make estimates in my favor for the Take-Home Pay Method or the Market Rate Method, but when I think about what I would want to pay someone else, I tend to lower the numbers.

Now, if Gates were to spend every second of every day picking up $100 bills, then he would eventually decrease the value of his time from $114.16 to $100.00. In the real world, of course, that’s never going to happen.

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James Clear writes about habits, decision making, and continuous improvement. He is the author of the #1 New York Times bestseller, Atomic Habits . The book has sold over 20 million copies worldwide and has been translated into more than 60 languages.

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Time Is Money Essay

500 words essay on time is money.

Time is money means time is priceless and precious. We use it for earning money but what’s important to understand is that we cannot use the money to get our lost time back. Thus, it makes time more precious than money or any other thing in the world. Through time is money essay, we will go through its importance and the reason behind it.

Importance of Time

Even though the importance of time differs for everyone, it is nonetheless important. Once we grow up, our childhood never comes back. Similarly, a student always tries their best all through the year for getting good grades.

Similarly, people make use of their precious time for different purposes to do their best to fulfil their wishes. It is because we are aware that time will not wait for anyone. We all get to live our life once.

Thus, it is up to us as to how we will use it. We can spend it by gaining a lot of achievement or we can spoil it by wasting the precious time given to us. Intelligent people strive to make the most of their time but living each moment to the fullest. Thus, we must all strive for the same thing.

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More Valuable than Money

It is clear by now that time is more valuable than money. Millions of people believe in this and it remains a fact. It is because once you lose time, you will never get it back, not even a second of it.

Time can be used to make money but money cannot be used to make more time. Thus, all the money in the world does not matter if you do not have enough time. Do you know the difference between successful people and failures?

We all get 24 hours in a day, no matter where we come from or how much money we have. It is not using all 24 hours that matters; it is how we use those hours. A successful person will always use their time efficiently to make progress in life.

Time is something we get and we have all the right to use it just like money. But, what’s different is that when we lose money, we can always get it back in one way or another. However, when we lose time, we can never get it back with any amount of money.

A patient in need of medical attention understands the value of time and that it is valuable than money . Similarly, an entrepreneur will take the fastest mode of travel to travel for a business deal to save time and seal and the deal. Thus, we see that time is indeed more important than money in life.

Conclusion of Time Is Money Essay

To sum it up, time is definitely more important than money. In fact, every one of use has experienced this truth or will do at some point in our lives. Thus, it is a proven fact that time is money so we must use it efficiently.

FAQ of Time Is Money Essay

Question 1: Why time is very important in our life?

Answer 1: Time is important because it helps us to make a good habit of organizing and structuring our daily activities. Moreover, it plays a major role in our lives. Similarly, time can also heal things whether external wounds or feelings.

Question 2: What figure of speech is time is money?

Answer 2: It is a metaphor. This popular metaphor compares time and money. It states that time is a valuable resource which we must all use efficiently in order to earn money and lead a comfortable life.

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Time is money? No, time is far more valuable. Here’s how to spend money to optimize your time

• People often say, “Time is money,” but what the aphorism misses is that time is by far the more precious resource.
• A money-centric mindset can be detrimental to your happiness compared to a time-valuing one.
• To be more “time-affluent,” clarify your core values and use your money to facilitate the pursuits and experiences that support them.

Four thousand weeks is the average lifespan of a person living in the modern world. With exercise and healthy living , you may push that number out a couple of months. Then again a disease or accident may just as easily cut it short. Give or take, 4,000 weeks is all the time you have to build the life you want.

Admittedly, such framing is stark, but it’s something we all understand on a gut level: Our time is limited, and that makes it the most precious resource we have. Yet when it comes to how we use our time , it’s often in service of money.

We spend more hours on paid work per day than any other activity except sleep — enough to subtract more than 500 weeks from a person’s 4,000. And that figure only accounts for the earning of money. When you factor in budgeting, spending, investing, and fretting over finances, then money even devours time allotted for unpaid work or “leisure” activities.

All the while, our lives tick silently away.

Of course, money is necessary. You need it to buy food, pay bills, prepare for retirement, and perform a litany of other daily to-dos. However, research suggests that once your income grows in excess of a subsistence minimum, having a money-centric mindset can be detrimental to your subjective well-being.

To build happier, more meaningful lives, you shouldn’t disburse your time in the pursuit of money; you should use your money to better facilitate your time.

Time is more scarce than money

The money-centric mindset is perfectly encapsulated in the aphorism “time is money.” It’s the kind of advice that people hold in reverence not because it’s proven useful or accurate but because it has an air of extraordinary authority. This is especially true in the U.S., where it is often attributed to none other than Benjamin Franklin .

By one reading, time and money are equivalent. You spent the former to get the latter. By another, money is the best possible output of your time. Any time not spent earning money is time spent wasting it. And, of course, the entire field of finance is based on the “time value of money.”

But like so many tattered clichés, this one crumbles under scrutiny. Time and money aren’t equivalent resources. If we measure a resource’s value based on its scarcity, then time should be far more cherished because you can always increase your supply of money.

You earn more money by negotiating raises, earning promotions, or changing professions. You can sell products for more than their costs, save money to spend when it is more advantageous, or invest your money to create capital to draw from later. Heck, you can even steal it .

The same cannot be said for time. The time you spend in one pursuit can never be recovered and exchanged for something else. You cannot save your time for a more favorable season nor invest it to create more later. And while you can gain a lot from your time spent — education , health, and, yes, money — those things cannot be converted back into time.

Time is more valuable than money

For these reasons, Ashley Whillans, a behavioral scientist at Harvard Business School, argues that subjective well-being doesn’t follow from becoming rich. Instead, she recommends we aim to become “time-affluent.”

Research shows that people who value time over money enjoy greater subjective well-being. They also have better social connections, healthier family relationships, and greater job satisfaction. 

And this isn’t because time-affluent people simply work less. According to one survey , they work about as much as their money-centric peers. The difference is that time-valuing participants favored “intrinsically rewarding activities,” meaning the time spent at work was more valuable to them than just a paycheck. “Nothing less than our health and happiness depends on reversing the innate notion that time is money,” Whillans writes at CNBC .

Nothing less than our health and happiness depends on reversing the innate notion that time is money. Ashley Whillans

How to spend your money

But if we all have the same 4,000 weeks, how does anyone become time-affluent? Time cannot be earned or gained. We all have the time we have. No more, no less.

The answer is that when it comes to time, it’s not how much you have that counts. It’s how you spend it. And here, money has an important role to play. By spending your money thoughtfully, you can draw more meaning and subjective well-being from the same number of hours and weeks.

“Most people don’t know the basic scientific facts about happiness — about what brings it and what sustains it — and so they don’t know how to use their money to acquire it,” psychologists Elizabeth Dunn, Daniel Gilbert, and Timothy Wilson write in their 2011 study published in The Journal of Consumer Psychology .

They add: “Money is an opportunity for happiness, but it is an opportunity that people routinely squander because the things they think will make them happy often don’t.”

According to their research, when people think about how money can support happiness, they typically make two fundamental errors. First, their predictions are almost always off, and second, they fail to realize that the context in which they are making these predictions is not the same as the actual experience.

For example, some people might think that a new 8K TV will bring them loads of happiness. But in reality, they end up spending more money on all the hook-ups and accessories. The setup and continued maintenance take more time than they think. And while they marvel at the picture quality for a while, they quickly acclimate to the supersized pixel count. After a month, it becomes yet another TV.

So while the purchase did bring happiness, it proves significantly less than imagined, especially compared to the costs in both time and money.

Because of this, the trio notes, buying things for yourself doesn’t make you as happy or for as long as we think it will. Instead, money facilitates happiness best when we use it to buy experiences, benefit others , or indulge in small pleasures. We should not waste time comparison shopping, and we should pay attention to how our purchases can ease — rather than add to — the stresses of our daily lives. In short, rather than being money-centric, you should look at how your money and time can support your values, build relationships, and help you do the things you find meaningful. When money doesn’t manage that, then no amount of it will move the needle in either happiness or life satisfaction .

Time is money plus values

It’s one thing to say we should buy experiences and use our money to do the things we find meaningful. But it’s another to figure out which experiences and pursuits will meet that goal and shift our mindset to be more time-affluent.

According to Paula Pant, host of the Afford Anything podcast, the first step is recognizing that you cannot afford or do everything. As she said in an interview: “You just can’t have an endless series of ‘ands.’ You might not be able to have that thing and something else and something else and something else.”

After that, she recommends a first-principles exercise to clarify your core values and how they can shape your spending habits. Start by writing down the components of your life (such as family, health, career, self-worth, etc.) Then for each vertical, write down all the things you might want to accomplish by the end of your life. Remember, you have less than 4,000 weeks, so be realistic.

Then review your lists and circle the accomplishments that are most important to you. Pursuit of these should be where you focus your time, energy, and money.

“That’s a very difficult exercise because oftentimes in each of those verticals, it’s hard to pick just one, but then you’ll know what’s most important across that top horizontal span,” Pant said.

She also recommends reviewing the list to be mindful of the “core experiences” that matter to you. That’s because what looks like two values on our lists may in fact be one value. For example, you may have spending time with family and traveling the world as two separate goals. But if the people you want to travel the world with are your family, then both of those goals are connected to the core experience of relationship building.

Once you’ve budgeted enough money to pay the bills and feed the family, you should consider how you can save and spend your money to best facilitate the experiences and time you need to live those values in your life.

“And that doesn’t just apply to your money,” Pant notes. “That applies to your time, your focus, your energy, your attention — any limited resource. And life is the ultimate limited resource. So when you practice being better at managing your money, you practice being better at managing your life.”

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With a diverse library of lessons from the world’s biggest thinkers, Big Think+ helps businesses get smarter, faster. To access Paula Pant’s full class for your organization, request a demo .

Time is More Valuable than Money

You can use your time to make money, but you can't buy more time..

Posted September 20, 2009 | Reviewed by Jessica Schrader

Most people look at their bank accounts with great attention and assess how much money they have to spend, to invest, and to give away. But they don’t look at their time the same way, and end up wasting this incredibly valuable resource. In fact, time is much more valuable than money because you can use your time to make money, but you can’t use money to purchase more time.

Time is the great equalizer. Each day has only 24 hours—nobody has any more than anyone else. Everyone, from poets to presidents, fills those hours, one after the other, until they are all filled up. Every single minute is unique, and once gone, can never be regained.

When you look at someone who has accomplished a lot, you can be pretty sure that he or she has spent considerable amounts of time mastering the required skills, filling hours upon hours with hard work. There are those who look at others’ accomplishments and say, “I had that idea," or “I could have done that.” But ideas are cheap and intentions are just that. If you don’t invest the time needed to achieve those goals then all you have are empty ambitions.

People often say, “I don’t have the time to …” Fill in the blank with whatever you like: exercise, make dinner, write a book, start a company, run for political office. What makes these people think that they have less time than anyone else? Of course they don’t. We all have the same 24 hours in each day and make real decisions about how we spend them. If you really want to get in shape, then carve out time to exercise. If you want to write a book, then pick up a pen and do it. And, if you want to run for president, then get started. It isn’t going to happen if you plan your day around your favorite TV shows or spend hours updating your Facebook page. These are entertaining distractions that eat up your irreplaceable time.

I teach a course on creativity and innovation at Stanford University. During a workshop on how to brainstorm, I often give the following prompt: There aren’t enough hours in a day. Come up with creative solutions to this dilemma. The brainstorming results in an endless list of solutions—from the practical to the preposterous—demonstrating that there are lots of ways to extract more from each hour, each day, and each year. Some of the most interesting solutions involve figuring out how to do two things at once. I know many people who have successfully incorporated this approach into their own lives.

For instance, I met a woman named Audrey Carlson several years ago who was struggling to figure out how to spend time with her friends and take care of her growing family. She started a group called “Chop and Chat.” Every Sunday, six friends got together to cook at a member’s home. Each member brought the ingredients to make a different recipe that was then split into six portions. Members took home six different main courses for the week. Chop and Chat was an inventive way for the women to cook together, socialize, and prepare meals for their families.

Another example is venture capitalist Fern Mandelbaum. You would assume that meetings with Fern take place in her office … and you’d be wrong. Fern is an avid athlete and her meetings take place on hiking paths. Everyone who knows Fern knows to wear walking shoes and carry a bottle of water to their meetings in anticipation of a strenuous hike. Fern finds that this strategy is a great way to get to know each entrepreneur while also getting exercise.

There is an oft-quoted saying that "time is money." You can interpret this to mean that time is a valuable currency. In fact, each day another 24 hours is deposited into each of our “bank accounts.” We get a choice about how to spend these hours. We decide how much we spend right away, how much gets invested for the future, and how much we give away. The worst choice is to waste these hours by letting them slip away.

It is almost noon, and I have 12 more hours to invest today!

Tina Seelig is the author of What I Wish I Knew When I Was 20 .

Tina Seelig, Ph.D., is a professor at the Stanford School of Engineering. Her latest book is Insight Out .

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• Value of Time Essay

Essay on Value of Time

Time plays the most important role in life. It is the most wonderful and practical thing. It has no beginning and no end. All things are born on time, grown on time and die on time. You cannot have command on time, nor can you analyze and criticize it. It is very crucial that you understand the value of time and manage it effectively; otherwise, time can create an enormous impact on your life. You need to comprehend and regard the value of time by not wasting it.

Time is the most valuable thing in life. It has no beginning and no end. It can neither be created nor be destroyed. Time is the only dimension in which we all live our lives, and it affects everything that we do, from a flower's growing cycle to the destruction of empires. Time is so important, in fact, that if you did not have any, you could not do anything at all. There are many things that we can do with our time: We can spend it on leisure activities, such as sleeping, watching TV, reading or going for a walk; on work or study; on raising a family; or on helping others. No matter what we choose to do, it is important that we manage our time and make the most of it. Time is a valuable thing when we are in school.

A flower can be planted anytime during the year, but if you want it to grow into a beautiful plant with colourful petals, then you must provide it with enough sunlight, water, and soil. You cannot tell time to wait for your instructions; thus, you must use time in the most efficient way possible to get things done. It is the same with our lives. We have a limited amount of time on this earth, and we need to spend it wisely if we want to accomplish our goals and dreams. There are many ways that we can misuse our time. One of the most common is by procrastinating. Procrastination is the act of putting off action until a later time when it could have been done much more efficiently if you had just done it in the first place.

Time has an Effect Everywhere in Life

Your use of time reflects your priorities. It shows what is important to you. For example, if you are always late for meetings or appointments, then people may assume that you do not value them or their time. However, if you are usually well prepared and arrive early for meetings, then your colleagues will know that they can rely on you to get things done in a timely manner. Time is very much crucial to every person in the world. You have wasted time in the past, so do not get frustrated if you are not able to manage your time perfectly. The important thing is to learn from your mistakes and use that knowledge to help you become more efficient with your time in the future!

Time is Valuable

Time management can be defined as "the process of planning and exercising conscious control over the amount of time allocated to the various activities in one's life." It is a skill that can be acquired through training and practice. In order to manage your time effectively, you must know how you spend your time now. Record how much time you spend on each activity during a week, then review what you have recorded. Identify the important tasks and the ones that do not serve any real purpose. Useless activities can be eliminated, and important tasks can be rearranged in a more efficient schedule. The most effective time management techniques include: planning your day the night before, setting priorities, delegating responsibilities, using a planner or calendar, working on one task at a time, utilizing time-saving tools and strategies, and taking short breaks. If we have good habits and good strategies and we follow them, we will get the most out of time. Time management has a great impact on our lives. It can make us more productive every day and help us achieve our goals in life. So take control of your time; do not let it control you! The value of time is something that everyone understands. Time is a precious commodity that we all have an equal amount of, and it is something that should not be wasted. It is interesting to think about how time affects our lives in so many ways. Time is the one thing that we all have in common, but, as a society, we have made very little use of that fact. We have divided up the time that we have into minutes and seconds to the point where time is now our enemy. We are always in a hurry, always chasing after something that we believe will make us happy. And yet, there is nothing that we can do to stop time from passing by.

Importance of Time

Time does not wait for anyone. Whether you like it or not, the fact is time will never stop. It will keep going on. This is an old belief, but it still holds true. Time gives you only one chance, and you have to make the best of it. A moment lost is lost forever. You cannot go back and reverse time.

Time is ever-changing, and change is the law of nature. Nothing is independent of time and change. Life is short, and tasks to accomplish are vast and challenging. We should realize this fact and not waste any minute. Every second and every opportunity should be used efficiently and meaningfully. 

Managing Time

Time management has become the most crucial task in today's busy world. It is the art of arranging, organizing, scheduling and budgeting one time for the purpose of generating more effective work and productivity.

Managing time is the effect of the value of time. It is important for everyone, including students, teachers, factory workers, professionals, homemakers and all. 

Managing time is not necessarily about getting a lot of things done. Instead, it is about getting the right things, the things that truly need to be done. So it is essential to remain focused and in control of time instead of rushing frantically from one activity to the next until you get exhausted. 

Never postpone things for the next day. Today is important. To complete your task today rather than leaving it for tomorrow. Leisure is enjoyable but after fruitful hard work. 

Steps to Utilize Time in an Effective Way

Focus on Most Important Tasks First : Calculate how much your time is worth for a particular job. This will help you to prioritize the work and focus on the important task first. Less important tasks can be delegated to others.

Create a Time Audit : You can keep track of the work that you do every week. Then you can make a report to find out which task is stealing more time. This will help you in proper assessment.

Set a Time Limit for Each Task : When you set a time limit for each task, then you will not get distracted and finish your work within the time frame.

Plan Ahead : If you plan well in advance, then you can be more organized and utilize time to complete work efficiently.

Don't Waste Time Waiting: If you have to wait for the completion of a task, then utilize that waiting time in a most effective way. Instead of sitting idle, you can read any book or study material of your interest. This will increase your productivity. 

Work Smarter and Not Harder : When you juggle with time, then be smart enough to take up one single task and finish it. Quality is more important than quantity.

Time is a very vital substance in our lives. By realizing the value of time and utilizing it effectively, we will not only achieve our goals to the utmost personal satisfaction but can also contribute to the advancement and development of our society and country. We need to respect time, and by this, we can get the best out of it.

So if people know the value of time, then it is beneficial for society and the individual. The value of time is often underestimated. People think that they have all the time in the world and so they can waste it. But, what people don't realize is that time is a precious commodity that, once wasted, can never be recovered. Time waits for no one, so whatever we want to do, we should do it now and not put it off for later so that we can enjoy it to the fullest. So our advice is that you should utilize your time as effectively as possible and feel content by finishing everything on time.

FAQs on Value of Time Essay

1.How can I manage my time effectively?

There are a number of ways to effectively manage your time. You can focus on the most important tasks first, create a time audit, set a time limit for each task, plan ahead, don't waste time waiting, and work smarter, not harder. Time is a very vital substance in our lives. With the help of time now, we can achieve our goals to the utmost satisfaction and can also contribute to the development of our society and country. We should save time so that we can use it in an effective way and achieve whatever we want in life.

2. What are some of the ways to effectively manage time?

There are a number of ways to manage your time, which include: focusing on the most important tasks first, creating a time audit, setting a time limit for each task, planning ahead, and working smarter, not harder if we know how to manage time in an effective way then we will be able to achieve whatever we want in life. Some ways of time management are given below-focus on the most important tasks first, creating a time audit, setting a time limit for each. These are some ways of managing time so that we can save our time and use it in an effective way.

3. What is the value of time?

Time is valuable because it is finite. Once time is gone, it can never be recovered. Therefore, it is important to use our time wisely and productively. Many people squander their time pursuing activities that seem initially pleasurable but have little to no long-term value. People who have a value of time can achieve anything they want in life. The value of time is how much somebody gives or takes for an hour of their labor. The value changes depending on what type of work you do and which industry you are working in. An average worker makes about $15/hour, so time is valuable. If you save your time, you can use it in a more effective way.

4. How can I be more organized?

To be more organized, you should plan well in advance, don't waste time waiting, and work smarter, not harder. Also, keep track of the work that you do every week by keeping a time audit report to find out which task is stealing more time from you. This will help you in proper assessment and improve your time management skills. If people improve their management skills, then definitely they can save their time and use it in an effective way. By saving time, anyone can achieve their goals.

5. How to work smarter?

Working smarter means taking on one task at a time and completing it to the best of your ability. Quality is more important than quantity when it comes to working smarter. Multitasking can actually lead to decreased productivity and poor work quality. Also, try to eliminate distractions and focus on the task at hand. When you work smarter, you get more done in less time. By working smart, we can save our time and use it in an effective way so that we can achieve whatever we want in life, but it doesn't mean you take shortcuts in your work. By identifying your priorities, setting goals, and focusing on the most important tasks first, you can make sure that you are using your time wisely.

Essay on Value of Time

Most of the people are fond of valuable and expensive stuffs in their life. They are usually items that cannot be replaced or would be expensive to replace , such as jewellery, antiques, collectibles, and artwork, etc. But valuable things are not only limited to these physical stuff.

Some things that do not exist physically are also very valuable like relationships, devotion, love, time, etc. In all this, time can be said to be the one of the most valuable thing of all time. Today we will read about the value of time in detail.

Short and Long Value of Time Essay in English

Here, we are presenting long and short essays on Value of Time in English for students under word limits of 100 – 150 Words, 200 – 250 words, and 500 – 600 words. This topic is useful for students of classes 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, and 12 in English. These provided essays will help you to write effective essays, paragraphs, and speeches on Value of Time.

Value of Time Essay 10 Lines (100 – 150 Words)

1. Time is precious, once it is gone, it is gone forever.

2. Time waits for no one, so it is important to make the most of the time we have.

3. We should use our time wisely and not take it for granted.

4. Time is a valuable resource that can never be recovered.

5. Time management is a key factor in achieving success in life.

6. Time should be spent on things that are meaningful and productive.

7. Time should not be wasted on unproductive activities.

8. We should use our time to build relationships, learn new skills and growth.

9. Making time for yourself is important to ensure that you have a healthy work-life balance.

10. We should use our time to make a positive difference in the world and in the lives of others.

Short Essay on Value of Time (250 – 300 Words)

Introduction

Time is as precious as money to us. It is often said that “Time is Money” and this is certainly true when it comes to our personal and professional lives. The value of time can never be underestimated and it is important to make the most of every minute we have.

The Value of Time

Time is something that can never be replaced or recovered once it is gone. We can never get back the time that has passed and this is why it is so important to be mindful of how we use it. Every moment is an opportunity to do something meaningful, to improve our lives or to help others.

Time Management

The key to maximising the value of our time is to manage it effectively. This means setting aside specific times of the day to focus on particular tasks and to ensure that we are not wasting time on activities that are not productive. Planning ahead and setting goals can help us to make the most of our time.

Making the Most of Time

One of the best ways to make the most of our time is to focus on the present moment. We should strive to be mindful of the time we have and to make the most of it. This means taking the time to enjoy life’s simple pleasures, such as spending time with family and friends or just taking a few moments to relax.

The value of time is something that cannot be underestimated. We should be mindful of the time we have and to make the most of it. Through effective time management and by focusing on the present moment, we can ensure that we make the most of our time.

Long Essay on Value of Time (500 Words)

Time is said to be one of the most valuable gems available to us. In fact, time is more valuable than money and is one of the few things that can never be replaced or recovered. While money can be made and lost, time can never be regained even if you spend a fortune. Therefore, we must know the value of time and how to use it wisely.

What is the Value of Time?

Time is valuable because it is limited; we all have the same 24 hours in a day, but what we choose to do with that time can make a difference in our lives. Time is invaluable, and every single moment should be made the most of. Everyone has the same amount of time, but successful people use it more effectively than others.

Time is a limited resource, so it is important to use it wisely. When it comes to time, it is important to remember the saying, “time is money.” When we use our time efficiently and productively, we are investing in our future. The more time we invest in ourselves and our goals, the greater the rewards we will reap.

Why is it Important to Value Time?

Time is a valuable resource, so it should be treated as such. We must appreciate and value the time we have in order to make the most of it. Valuing time is important because it can help us to achieve our goals, avoid procrastination, and make the most of every moment.

Valuing time is also important because it helps us to prioritize our tasks and focus on what is important. We can better manage our time and energy when we value it and use it wisely. Valuing time is also important because it can help us to be more productive and efficient in our daily tasks.

How to Value Time?

Valuing time is an important step in living a more productive and meaningful life. To value time, it is important to prioritize tasks and set realistic goals. It is also important to be aware of how you spend your time and create a schedule that works for you.

It is very important for us to know about how to spend our time. If you want to make the most of your time, it is important to eliminate distractions and focus on the task at hand. Being organized can also help to make the most of your time.

Lastly, it is important to take breaks and give yourself time to relax. Breaks can help to increase productivity and ensure that you are giving yourself the time you need to recharge and refocus.

Time is one of the most valuable resources available to us and it is important to understand and value the time we have. Valuing time is important because it can help us to prioritize tasks, avoid procrastination, and make the most of every moment. To value time, it is important to prioritize tasks, set realistic goals, and create a schedule that works for you. Valuing time can help us to be more productive and efficient in our daily tasks and make the most of our limited time.

I hope the above provided essay on Value of Time will be helpful for you to know the importance of time in your life.

FAQs: Frequently Asked Question on Value of Time

Ans. Geoffrey Chaucer used the proverb for the first time.

Ans. It is said that a well-known scientist, Sheshadri Cooperama has invented the time machine in India.

Ans. Time can be measured with atomic clocks.

Ans. Basic units of time includes second, minute, hour, day, week, month and year.

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Researching of the Time Value of Money Essay

• To find inspiration for your paper and overcome writer’s block
• As a source of information (ensure proper referencing)
• As a template for you assignment

The Eurozone

Floating the yuan to the us dollar, the attractiveness of us corporations that seek fdi, enron and worldcom scandals, reference list.

The Eurozone was hit severely by 2008 to 2009 global financial crisis. Consequently, various nations incurred incredible threats to the stability of their financial systems. This situation was witnessed in countries such as Portugal, Italy, Ireland, Greece, and Spain (PIIGS). Until today, these countries have sustained serious financial debts that threaten them to be declared bankrupt as one of the consequences of failure to repay their loans (Roubini & Mihm, 2016). In the effort to get the nations out of trouble, the International Monetary Fund, the European Central Bank (ECB), and other member states to the Eurozone, which also adopted a common currency (Euro), considered bailing-out PIIGS. By so doing, other member states would shield themselves from troubles associated with trading within the same regional blocks with nations that had large debts.

Bailing-out can work effectively only if all Eurozone member nations consider adopting structural and monetary policies that can help destabilized member nations to regain stability. After receiving the loan, one of the monetary policies that would help PIIGS to stabilize is the deflation of their currency, in this case, the Euro. The policy would make their products cheaper, hence becoming more competitive in the international markets. Through economies of scale, the nations would grow their productivity. This policy requires approval by all member nations. However, the policy cannot succeed (Roubini & Mihm, 2016). Already stable nations such as Germany, which will help in bailing out PIIGS, cannot consent to such policy, as it would lead to the weakening of the euro against the dollar. Therefore, bailing out of PIIGS without considering adjustments of monetary policies towards the euro would reduce the number of Euros available to the Eurozone for trading with other nations.

Considering the discussion, it is clear that China adopts an appropriate strategy that permits the variation of its currency against the Dollar to take advantage of international trade. Hence, the nation does not adopt the floating exchange rate policy. Indeed, the cornerstone of the economic propensity of China is based on exports. Lipman (201) reveals the absence of a specific known value of Yuan in Dollar terms, despite the general agreement that the currency is significantly undervalued. Depending on the variations of global trade, the People’s Bank of China (PBOC) sets an appropriate reference point of Yuan against the Dollar for the Dollar to fluctuate within a predetermined band.

When Americans complain about the low pegging of the Yuan against the Dollar, China responds to the concerns. However, its moves are well calculated to ensure that any upward adjustment delivers more value to the nation. China has large reserves of treasuries in the US market. By recycling all Dollar surpluses through investments in the United States’ treasuries, the government of the US acquires the capacity to fund its budget arrears, including maintaining its bonds within low yields (Lipman, 2011). China is the largest holder of the United States’ treasuries. In 2013, the amount was in excess of 1.3 trillion. This situation introduces yet another challenge for the US. In case China devalues its currency against the US and/or chooses to trade all the treasuries, the Dollar would significantly be devalued.

From the above arguments and those developed in the discussion, China is a currency manipulator. Adjusting the ‘peg point’ upwards or downwards has financial implications, which the US is immensely concerned about. For instance, by raising the peg value, China may consider selling out its treasuries held in the US. Downward adjustments may boost the competitive advantage of Chinese-made goods in the US while decreasing the attractiveness of US exports in the Chinese market. The overall outcome will be higher trade deficits. Nevertheless, such adjustment is appropriate for the US. It enables its people to buy goods cheaply, hence reducing their cost of living. Consequently, as a currency manipulator, China’s economy still shows signs of surpassing that of the US.

The US has to deal with the challenge of ensuring its products are attractive to its market and to the international bazaar. Therefore, it needs to ensure that production is accomplished in the most effective manner to compete with imports from low-cost economies such as China. This plan calls for the US corporations that seek to invest directly in foreign nations to consider various nations where optimal gain can be acquired. Two possible options are India and the UAE.

The UAE option has the merit of having large cheap energy that can be used in ensuring low-cost production. The nation is mainly a consumer market that has a soaring appetite for high-end products in terms of quality and appeal, which the US corporations are well known to have the capacity of manufacturing. Since the main concern of the US in its trading relationships with China is on the competitiveness of its products in the Chinese markets, the UAE may provide lasting solutions to US-based corporations that seek attractive nations for their direct foreign investments. However, some critical risks must be considered. For instance, in the case of China, the UAE pegs its currency on the Dollar.

Pegging of Dirham against the Dollar may not cease in the near future. The UAE investments are rated in US Dollars. During the forum of the seventh international financial markets held in Abu Dhabi in March this year, the administrator of the UAE Central Bank cited this case as the single most important reason for not de-pegging the Dirham to the Dollar. Superintendent Mubarak noted that the Dollar is important to the UAE since it guarantees the nation’s economic stability to mitigate fluctuations in economic growth (Bouyamourn, 2015). Another important risk that such corporations need to consider is the availability of labor. The UAE relies heavily on expatriate workers. Consequently, corporations that seek to invest in the UAE have to employ many expatriate workers while complying with the government’s strident regulations on the Emiratization policy.

India does not have the demerits associated with direct foreign investments in China and the UAE. The nation has a large consumer market that is appropriate for US corporations. It has relatively stable fiscal policies that guarantee the steadiness of its currency. It also possesses a large population of highly skilled employees. Since any involvement indirect foreign investment would involve cost saving in production, India remains the most single important nation for the corporations. It has a large population of workforce that is not only highly educated but also supplies cheap labor. This atmosphere is necessary to boost its competitiveness in the global market for products that are made by US corporations.

Enron, Worldcom, option backdating, government bailouts/nationalizations, and Madoff indignities constitute one of the expensive corporate governance tests of the US investment market. However, amid this expense, the experience helped the US to develop appropriate frameworks for protecting stock markets to regenerate investor assurance and dependence. The US security markets became cleaner and more reliable when compared to the rest of the world. When Enron, Tyco, and Worldcom deception took place, the US legislators sought to develop a policy that would not only reawaken corporate investors’ poise but also ensure that such frauds would not occur in the future. Consequently, the Sarbanes-Oxley Act was endorsed in 2002 to create guidelines that pushed all organizations to comply with the principles of corporate governance. The Act, also referred to as SOX, seeks to enhance the protection of investors from corporate crimes (Jahmani & Dowling, 2009). It emphasizes disclosure of accounting information through legal frameworks to minimize deceptive activities within corporations.

Stock markets in the US are secure since organizational management has a mandate of ensuring that inventors’ funds are not exposed to risks as part of corporate social responsibility. Before this requirement was put in place through the SOX, the US experienced three of the largest cases of fraudulent activities acerbated by corporate managers. Bodies mandated with conducting oversight roles on behalf of investors also experienced challenges due to a lack of policy frameworks to foster their independence while scrutinizing corporate financial accounts (Jahmani & Dowling, 2009). In some instances, auditing organizations also engaged in other businesses such as consulting arrangements with companies they were required to audit. The Sarbanes-Oxley Act endeavored to seal all loopholes that made it easy for corporate managers to engage in fraud, which is against the corporate governance principles, which make the US security markets cleaner and more reliable when compared to the rest of the world.

Bouyamourn, A. (2015). Dirham sticks to the Greenback . Web.

Jahmani, Y., & Dowling, W. (2008). The impact of the Sarbanes-Oxley Act. Clute institute-Online journal, 6 (10), 57-66.

Lipman, J. (2011). Law of Yuan price: Estimating equilibrium of the Renminbi. Michigan Journal of Business, 4 (2), 5-23.

Roubini, N., & Mihm, S. (2016) . Can Europe be saved? Time is running out to rescue the economies of Portugal, Ireland, Italy, Greece, and Spain . Web.

• Fraud at WorldCom Company
• Centralising the Treasury Operations
• Hard and Soft Currencies
• The Key Variables Used for Forecasting the Euro
• Gold Price is Playing Roller Coaster
• Iranian Currency and Factors Affecting It
• Investing in the Foreign Exchange Market
• China Looks at Introducing Tax on Foreign Currency Transactions
• Chicago (A-D)
• Chicago (N-B)

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Essay on Value of Money

Students are often asked to write an essay on Value of Money in their schools and colleges. And if you’re also looking for the same, we have created 100-word, 250-word, and 500-word essays on the topic.

Let’s take a look…

100 Words Essay on Value of Money

Understanding money.

Money is a medium of exchange for goods and services. It is a tool that allows us to buy what we need and want.

The Importance of Money

Money is important as it enables us to live comfortably. It provides us with food, shelter, and education.

Managing Money

Learning to manage money is crucial. It involves budgeting, saving, and investing wisely.

In conclusion, money has immense value. It’s not just about buying things, but also about securing our future.

250 Words Essay on Value of Money

The concept of value.

Money, a medium of exchange, has transformed from barter to digital currencies. It holds a value that is universally acknowledged, enabling people to acquire goods and services. However, the value of money isn’t merely its purchasing power. It also represents opportunity, security, and freedom.

Money as a Measure of Worth

Money is often perceived as a measure of worth. The more money one has, the more value they are perceived to hold. This perspective, however, is flawed. Ascribing worth to individuals based on their wealth can lead to a distorted understanding of value, neglecting qualities like kindness, creativity, and resilience.

The Temporal Value of Money

The temporal value of money is a crucial economic concept. It suggests that money available now is worth more than the same amount in the future due to its potential earning capacity. This principle underlies the concepts of interest, investment, and risk.

Money and Freedom

Money can grant freedom, allowing individuals to make choices and decisions without constraints. However, this freedom can also lead to a paradox where the pursuit of money becomes a trap, limiting personal growth and happiness.

In sum, the value of money is a complex concept, extending beyond simple purchasing power. It’s a measure of worth, a temporal asset, and a tool for freedom. As we navigate our financial journeys, understanding these various dimensions can help us use money as a tool for fulfillment, rather than viewing it as the ultimate goal.

500 Words Essay on Value of Money

Introduction: the concept of money, the personal value of money.

On a personal level, the value of money is often equated with freedom and security. It provides the means to fulfill basic needs and pursue personal aspirations. It also offers a safety net against unforeseen circumstances. However, it’s important to understand that money is a tool, not an end in itself. The value of money lies in its use and the quality of life it can provide, rather than the accumulation of wealth for its own sake.

The Social and Economic Value of Money

Societally and economically, money serves as a common measure of value, facilitating trade and economic interactions. It is the lifeblood of the economy, enabling the flow of goods and services. Money also confers social status and power, often serving as a yardstick for success. However, this can lead to societal disparities and economic inequality, highlighting the importance of fair wealth distribution.

The Psychological Value of Money

The time value of money (TVM) is a fundamental concept in finance. It holds that a dollar today is worth more than a dollar tomorrow due to its potential earning capacity. This principle underlies many financial decisions and strategies, emphasizing the importance of prudent management and investment of money.

Conclusion: The Multifaceted Value of Money

In conclusion, the value of money is multifaceted and extends beyond its purchasing power. It holds personal, societal, economic, psychological, and temporal value. Understanding these aspects can help us navigate our financial decisions and foster a healthier relationship with money. However, it’s crucial to remember that while money is a powerful tool, it is not the sole determinant of success or happiness. It is the means to an end, not the end itself.

If you’re looking for more, here are essays on other interesting topics:

Happy studying!

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