The Importance Of Knowing The Value Of Money Over Time

Within corporate finance, there is an element that is confusing, and of great importance, I mean the amount of money over time, it is essential in areas such as capital budgeting, leasing and purchasing decisions, analysis of accounts receivable, Financial Agreements, mergers and management of pension funds.Let’s suppose a simple example to understand the relationship that a euro can have today with one in the future: A SME wants to invest 100,000 euros in a project in Madrid, which according to the analysis should yield 15,000 euros per year for nine years. The question is: Should the company accept the plan?

At first glance, it could be said that yes, since if we add the total income of nine years we see that it throws the amount of 135,000 euros, which are considerably higher than the initial outlay.

However, we must consider that the disbursement to invest is immediate, yet the 15,000 euros are received in the future.

 On the other hand, the initial capital required represents a decrease in liquidity, without knowing exactly if the income will be given as predicted.

I must clarify that the value of money over time is intimately linked to the concepts of future value and current value, which I will define with examples in subsequent deliveries.

How Important Do You Give Money?

Stop to think what the money means to you. For many, money is everything because without it we cannot do anything, everything in life is based on transactions and money is involved. For others, however, money is nothing more than a currency that has no added value, since happiness is not in material possessions.   They say that money does not give happiness, but they also say that it helps to obtain it. How important is money in our life? The balance between these two options is ideal. Being aware of the importance of money in our society and the real value it has will help us to manage it correctly and to plan for the future. So that the bull does not catch you in the golden age, the ideal is that you have been aware of the value of money and have been saving little by little. If on the contrary, you have not done it that way, you can take a scare when you reach retirement and want to continue with your standard of living and you cannot.
It is because of these uncertainties that it is necessary to know the relationship and the effects that a euro will have on the company today and a euro (perhaps uncertain) in the future before deciding to carry out a specific project or not. These two opposite views are the most radical, but what do you think?
While we are young, we do not think so, but as we get older, the concern for savings tends to increase. See that every time there is less for retirement, but that you still do not have the pension you had in mind, makes us stop to think and find a method of saving. At this time, if you did not give importance to the money, you start carrying it.
As we talked to you on numerous occasions, knowing how to manage money and allocate a part for savings is essential for an excellent domestic economy. Start learning to save little by little and then leap savings insurance, pension plans or investment plans.
We offer you different savings methods that fit your profile according to your needs. We know that it does not save the same way a bachelor of 35 years without children, that a family of 4 members.