Question

Discuss how you can relate the time value of money concept to your personal life. For example, how can you relate TVM to the retirement plans?

Answer 1

Answer:

The time value of money concept is the concept that proves the present value of money is more worthy as compared to a similar sum received in later years. Due to the time gap & other various factors such as inflation & other factors present worth of money is more as compared to future worth.

Let understand it with this example, If we have received $1,000 today & another $1,000 one year later, the value of $1,000 received today is more worthy as compared to $1,000 received after 1 year due to many factors in the near future.

The time value of money plays a very crucial role in personal life as well in deciding about the raising of funds from various sources keeping in mind the various discounting factor & present worth of the money. Time value of money also helps in deciding to buy the assets while keeping in mind the present & future value of cash flows & other factors.

Time value of money is also helping in taking the decision of retirement plan, as for the purpose of retirement we need to expand many funds for various needs such as children education, marriage, modification in fixed assets, etc. & TVM plays a crucial role to decide how much funds need to be deposit today to achieve the goals of the life after retirement keeping in mind the various factors such as discounting rate, inflation, etc.

Accordingly, the time value of money concept is very useful for personal life, like taking decision for retirement plans etc.