Question

When making their day to day financial decisions, individuals may make a mistake by ignoring the time value of money (TVM) concepts.

For your initial discussion post, think back and give an example of a mistake you made by ignoring the TVM in making a financial decision. Please be as elaborate as you can with numerical examples.

Alternatively, you could discuss a situation where you should incorporate TVM concepts before making the most appropriate financial decision. Again, be as elaborate as you can with numerical examples.

Answer 1

I have started my investment into the markets and other assets at a later stage in my life so I feel that I have made a blunder while making financial decisions because I should have invested at my early stages so that it would have helped me to maximize my rate of return through the benefit of compounding.

For example, when an individual is starting to invest early in his life he will be having a higher probability of making a higher rate of return because he will be compounding his rate of return with the higher time period so time value of money will be providing him with additional feature of maximizing rate of return with the growing time due to effect of inflation.

one should be trying to incorporate time value of money concept also before making various purchase decision because when one will be purchasing car or other asset they will be trying to look at the savings which has been done by those assets and they will be trying to discount the savings with the initial investment which is being made in order to better analyse the purchase of both products so time value of money concept will be helping in making a lot of daily life decisions and investment decisions which will be providing a financial independence.