Time Value of Money: Exploring the Concept of Finance - Essay Sample

Introduction

The time value of money (TVM) refers to the theory that the cash an individual possesses presently have more worth than the same amount in the future due to its prospective earning ability. The time value of money concept of finance states that so long as money can generate revenue, any value of money remains valuable the sooner it gets obtained (Dlabay, Kapoor & Hughes 26). The present discounted value also refers to the time value of money. Unreliable economic periods strengthen the significance of sound personal financial judgments. Every fiscal year, several people get declared bankrupt. Most people lose huge sums of money on fraudulent investments as an outcome of poor individual financial strategies and lack of information (Dlabay, Kapoor & Hughes 2). The capacity of an individual to make wise money judgments remains the foundation for contemporary and sustainable well-being. The purpose of this paper involves the examination of personal financial management and the time value of money.

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A Self-evaluation on Personal Financial Management

Most people manage their finances so that they gain complete contentment from every accessible single penny. To achieve complete satisfaction and other financial obligations, individuals must set and identify priorities. Both financial and personal contentment results from a systematized method, usually called personal financial planning (Dlabay, Kapoor & Hughes 3). Personal financial planning refers to the practice of controlling the usage of money to realize special monetary gratification. The manner of regulating finances helps people to handle their financial state.

Each individual, household, family, or company has an exceptional financial spot, and any financial action therefore, must get scheduled prudently to meet certain criteria and objectives. A comprehensive financial strategy can improve the quality of a person’s living standards and enhance their happiness by minimizing insecurity about their future wants and resources (Dlabay, Kapoor & Hughes 5). As a college student, the past, present, and future financial worth remains vital in determining who we become. Personal financial planning benefits include enhanced effectiveness in attaining, utilizing, and safeguarding personal financial resources throughout a person’s lifetime (Dlabay, Kapoor & Hughes 5).

Besides, the effective financial organization helps in imposing control over an individual’s financial dealings by evading unnecessary debt, insolvency, and reliance on others for monetary security. Moreover, sound financial strategies ensure better personal relations resulting from well-controlled and proficiently communicated economic resolutions. Appropriate financial planning gives a sense of liberty from financial concerns acquired by considering the future, expecting costs, and attaining personal monetary aims (Dlabay, Kapoor & Hughes 5). People make several decisions each day regarding how they spend or intend to spend their monies.

Most of these choices remain modest with little concerns. Other resolutions seem intricate and contain a long-term impact on our private and economic positions. Personal financial undertakings involve spending, saving, and sharing decisions. Spending entails daily living costs, major expenditures, and expenses for recreational activities. Saving involves long-term financial security while sharing consists of providing local and global help to the needy. The financial planning process involves establishing the current financial situation, developing financial aims, and identifying alternative courses of action (Dlabay, Kapoor & Hughes 7). Furthermore, one needs to evaluate alternatives, create and implement their financial action plan, and lastly, review and revise the financial plan.

Financial Strengths and Weaknesses

Financial strength refers to all that supports the contemporary economic situation or assists people in trying to accomplish their mission concerning their financial strategy (Dlabay, Kapoor & Hughes 8). Since I have a positive monthly cash flow from the part-time jobs, I engage in that enables me to pay my expenses, I feel that I am currently in a better position financially. Besides, since I can pay my tuition fee without much difficulty, this enhances my current financial situation. Financial weaknesses involve issues that hold an individual from realizing their financial goals (Dlabay, Kapoor & Hughes 8). Such aspects as debt, lack of income, or earning potential can act as a financial weakness. The present financial weakness that holds me back involves the earning potential. Due to the outbreak of the global epidemic of COVID-19, my earning potential has reduced greatly.

Desired Changes in Money Management Practices and Course Expectations

Money management refers to cost control, budgeting, investing, saving, and managing debt. Money management refers to a method of ensuring money generates the highest revenue for any cash used (Dlabay, Kapoor & Hughes 10). Humans usually spend money to satisfy their desires. The notion of money management systems helps minimize the quantity that entities spend on commodities that add no considerable value to their well-being, lasting portfolios, and properties.

As a student, it remains my desire to control my finances to add value to my living standards, assets, and long-term portfolios. I expect to identify alternative options of action like formulating a great saving and investment plan for my future financial safety. I plan to deliberate on these alternatives to include a continuation of the same option of plan or save more money every month (Dlabay, Kapoor & Hughes 11). I plan to analyze if I can modify the existing situation by determining whether to utilize a money market account as an alternative to a fixed savings bank account.

The expectation I have from the course involves examining likely courses of action, considering my recent financial circumstances, personal life condition, and personal values. These choices will result in opportunity cost, which involves the opportunity forgone by making a decision (Dlabay, Kapoor & Hughes 12). Moreover, I expect to evaluate the risks involved in my choices of alternatives by collecting data based on my experiences and others developing my financial strategy.

Aspects that Explain Situations and Actions to Help Achieve Desired Outcomes for My Financial Planning and Goals

To realize the desired financial planning outcomes and objectives, I intend to make every monetary dealing worth the expense by avoiding any costs that appeal to egotism or pretentiousness (Dlabay, Kapoor & Hughes 13). Also, I intend to seek the most cost-effective alternative usually, favor expenditures on interest-bearing items over all others, and establish the expected gains of every desired expenditure. To achieve this, I need to employ the canon of addition, subtraction, and null to the principle of living value technique (Dlabay, Kapoor & Hughes 13). Such techniques enhance investment and multiply portfolio.

To achieve my goals, I intend to develop an action strategy that will formulate a successful financial plan. I also intend to review and revise the financial plan regularly since the economic strategy remains dynamic and continues to shift even after choosing a particular action. The continuous shift in personal, economic, and social aspects need more recurrent evaluation. Scholars suggest that when life events shape a person’s monetary needs, their financial planning process will offer an opportunity for adjusting to those variations (Dlabay, Kapoor & Hughes 15). Regularly reviewing this decision-making process ensures that individuals make priority adjustments that will ensure their financial objectives and activities in line with their present life situation.

The Impact of the Course on my Thinking about Money

From this course, I have realized that most Americans have money problems due to weak money management behaviors and poor monetary planning in segments like spending and the use of credit cards. The other aspect involves massive promotions, marketing efforts, and merchandise accessibility (Dlabay, Kapoor & Hughes 17). Achieving personal economic contentment begins with effective financial aims. There exist two aspects that determine the financial ambitions of an individual: the time frame needed to achieve the objective and the kind of financial requirement that influences these intentions.

I have also learned that decisions, such as reduced debt and spending, reviewing the security of my savings, scrutinizing my insurance coverage, evading financial scams, and communicating with relatives remain valid for any monetary condition in the entire economic environment (Dlabay, Kapoor & Hughes 23). The understanding of sound personal finance framework can serve people in all phases of their life and every facet of the business cycle. The strengths gained involved the preparation of a financial plan, while the weaknesses eliminated entails poor money spending and investment. In most financial decisions, humans sacrifice something to gain something else that the individual considers more valuable.

Conclusion

Humans constantly make judgments among diverse financial options. In making these resolutions, persons deliberate on time value for money. Investing or saving certain amounts today can generate more through interest earned in the future. Every time a person spends, invests, lends, or saves money, they should reflect on the time worth of that money as a prospect price. Financial planning helps decide on how to intelligently create, safeguard, and utilize our disposable resources effectively.

Work Cited

Dlabay, Les, Jack Kapoor, and Robert J. Hughes. Personal finance. McGraw-Hill Professional Publishing, 2016. www.publications.lakeforest.edu/faculty_books/7/. Accessed on July 20th, 2020.