In: Finance
Give an example of a personal finance experience you have had which involved the concept of the time value of money. What have you learned?
An example of time value of money that I have experienced is while choosing on the best investment to meet my future financial goals. While choosing between deposits in a bank or investment in stocks , investment in 401(k) plans I have applied time value of money. About 10 years back I had $10,000 to invest in any one of these options and I realized that putting my money in stocks is the best option due to time value of money. I have learnt that the power of compounding is the essence of time value of money. Time value of money is essentially to mean that each dollar received tomorrow is less than what it is worth today. Compounding interest is to mean that the interest is added to the principal and in this manner interest added also earns interest . The power of compounding is greater than simple interest and money grows faster when the money received from the investment is left in the account.