A euro today is worth more than a euro tomorrow – the financial aspect of the time value of money.

27 October 2015

Money today is literally worth more than it will be in the future in terms of what it will buy you. In 1985, before you drove to the supermarket to buy a liter of milk for 52 cent per liter, you would complain about spending 75 cent per liter to fill up the tank of the car you had just purchased for €7,500. Today, milk costs an average of €1.00 per liter, you are more than happy to spend €1.29 per liter at the pump, and buying a new car will put a €27, 500 dent in your bank account. You can largely thank inflation for this.

But inflation isn’t entirely to blame for rising costs nor does it explain why in 1985 the average home in Dublin sold for € 50,000 whereas today the median home price in the city has now risen to €350,000!! There are countless reasons why costs skyrocket with time, including popularity, world events, diminishing resources, natural phenomena, technology, etc.

Aside from stronger buying power, the higher value of money “now” can be further illustrated by how it can be “used” today to grow. Consider what would happen if you put a euro in a time capsule versus putting a pound sterling in a typical interest-earning bank account. In 30 years, the bill in the time capsule may look pristine, but it will be worth exactly one euro. Whereas the euro you put in the bank will have more than doubled. This is a simple example of the magic of compounding interest, however, you can just as easily turn today’s euros into something substantially more valuable by paying down debt, investing in a business, or buying a property.

Waiting to receive some pre-determined amount of rent from your telecoms lease in ten, twenty, or even thirty years into the future is the equivalent of waiting for a sealed time capsule of money to open up. Just think, what will your rent be “worth” then? How much buying power and how many investment opportunities will slip through your fingers as the years go by?

Now, what would you do if you could unlock your time capsule today?

A euro today is worth more than a euro tomorrow – the financial aspect of the time value of money. was last updated February 1st, 2016 by APWireless IE
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