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Running Head: PRESENT AND FUTURE VALUE 1

PRESENT AND FUTURE VALUE 2

Present and Future Value

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The fundamental principle of finance is that money is worth more the sooner it is received. The time value for money holds that amount of money that one has at present is more worth than the identical sum in the future. This is because the money that one has at present has a better and potential earning capacity. Net worth is what one owns, while disposable income is the taxable income that one gets from working or providing a service. A good investor uses his disposable income at present to improve his future net worth. Notably, there are available ways through which one can utilize the disposable income to get the most net worth by retirement age. One of these ways is making smart investments. From the disposable income, one can find a long term investment plan and improve his net worth slowly (Ross et al. 2018). For instance, I would advise my brother to invest his disposable income in mutual funds, real estate, and stocks. These are investments whose returns may sound slow, but with time, one can improve his net worth is a tremendous manner. Creating income from investments is a way of accumulating net worth. Investing for retirement feels like investing for other people, and it can sometimes be difficult to invest disposable income for the future when it sounds better to spend the money now. Investing disposable income offers exceptional returns on investments; thus, it is a very good way of getting the most net worth by retirement (Ross et al. 2018).

Another way of getting the most net worth by retirement is by increasing the disposable income through spending less (Ross et al. 2018). This involves tightening the budget on the expenses and luxuries to invest the increased disposable income and secure a better net worth in the future. Luxuries make the retirement grind uncomfortable and come with a degree of misery in the future. Thus cutting expenses involved in luxuries helps in building future net worth. Investing in education is also a good way of improving net worth by retirement. For instance, one can invest in the education of their children by taking an education insurance policy or opening a tax free saving plan, which ensures one can pay for their child’s school fees in the future with ease. This way, the net worth is preserved because the expenditure on education will already be sorted and taken care of. One needs to start planning for their retirement early enough to ensure that their net worth by the time they retire is at its best. In summation, when put in good use, disposable income offers a tangible return on investment, which aids in getting the most net worth by the retirement age (Ross et al. 2018).

Reference

Ross, S. A., Westerfield, R. W., Jaffe, J. F., & Jordan, B. D. (2018). Corporate finance: Core principles and applications (5th ed.). New York, NY: McGraw-Hill.