THE TIME VALUE OF MONEY
So today morning, renown founder of Akad Education Africa and my mentor, Rev Dr Julius Weche had his journey to Nairobi cut short midway. Hold up. He’s not dead. That’s not what I’m driving at. The vehicle he was travelling in broke down owing to poor condition of the roads coupled with the unpreparedness of the shuttle jamaas. He wrote in our Mentorship group,
“I abandoned the shuttle after it broke down and three hours later they are unable to fix the problem 😢 …Chose to lose my 1k shuttle fee because I refuse to engage in the error of vividness and in appreciating Time Value of Money (TVM) with opportunity cost of waiting in the middle of nowhere forever”
So what did he mean by the term Time Value of Money? I decided to find out.
Investors believe that the same amount of money is of more value today than tomorrow. It’s more or less the same as the proverbial bird in hand that’s worth more than its two counterparts in the bush, only for the fact that in TVM there’s only one bird in the bush.
Ten thousand shillings is more valuable to you today than two years from now. How so? If I were to deposit the 10k in a savings account today, in two years, this amount would have yielded a certain amount of interest depending on the interest rate.
The formula :
FV = PV x [ 1 + (i / n) ] (n x t)
is used to calculate the time value of money whereby
FV = Future value of money
PV = Present value of money
i = interest rate
n = number of compounding periods per year
t = number of years
So 10,000 bob one year from today is worth …
FV = 10,000 x (1 + (10% / 1) ^ (1 x 1) = 11,000
And sh 5000 bob today was worth 4,673 one year ago.
So why am I sharing this with you today?
Time is money. Get value for your time. If someone had agreed to have settled a certain amount of money with you on a particular day and they delay, as a wise investor and the business person that you are, it is in perfect order that you demand value for time.
That’s what I had to say about time and money.