The Easiest Way To Make Money- Understand The Time Value Of Money

The Easiest Way To Make Money- Understand The Time Value Of Money

The time value of money concept is fundamental to all financial transactions and is a key precept in the discount buy. Capitalizing on this concept is the easiest way to make money. Using this financial concept can change your current economic picture and give you a bright financial retirement future.

The time value of money compares the value of a dollar today with the value

of that dollar in the future, whether it is six months, two years, or twenty

years from now.

The principle states that the value of a dollar received today is worth more than

a dollar received in the future. Compared to the buying power of a dollar today,

a future dollar won’t be able to buy as much because of the coming inflation created

by government overspending. The impact of inflation becomes more significant when

you increase the amount of time and money involved.

CREATING WEALTH FOR RETIREMENT WITH DISCOUNT BUYING

The following chart shows the future value of 00 at different inflation

rates over time.

Compound Interest

We can use the same principle of the time value of money to work for us

to counter inflation. We do this through earning interest on our money at

a higher rate than the inflation rate. This principle works the same way when

you use it to make your money grow, and is the easiest way to make money.

The concept of growing money is called compounding. You take a certain

amount of money, invest it, earn a return on the investment, and then reinvest

your initial investment amount and earnings over a period of time. You keep

turning the money over and as this base amount grows, so does the amount

it earns in interest. This is illustrated in the following chart.

Year Amount Interest Total Value of

Invested Earned Investment

1 ,000.00 .00 = 50.00 2 ,050.00 .50 = 02.50 3 ,102.50 .13 = 57.63 4 ,157.63 .88 = 15.51 5 ,215.51 .78 = 76.29

Another money growth concept is the Rule of 72. The Rule of 72 is a

shortcut used in the financial industry to determine how long it will take to

double your money. All you do is divide the number 72 by the interest rate

you’ll be earning. If you invest one thousand dollars today at 12 percent,

you would discover, after dividing 72 by 12, that it will take six years to

double your money.

A similar principal is the rule of 112. This rule determines how many years

it will take to triple your money. At a 6% interest rate, you will triple your

investment in a little over 18 ½ years, at 12% it would triple in roughly 9

years, and at 18% it would triple in 6 years.

The time value of money is crucial to the discount buy business because in

this industry, deals revolve around the concept of paying cash today to

receive cash in the future, definitely the easiest way to make money.

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