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Timea valuea ofa moneya isa thea differencea ina thea buyinga powera ofa aa dollara overa time.a Fora
instance,a thea pricea ofa gasa wasa abouta $2.39a aa gallona backa ina 2020,a anda todaya ita isa averaginga
abouta $4.19a aa gallon.a Backa ina 2020,a Ia useda TVMa bya calculatinga mya incomea minusa mya
expensesa anda interesta ratea ofa mya loana toa determinea whethera ora nota purchasinga aa largera
vehiclea woulda bea wortha thea cost.a Gasa wasa cheapera anda interesta ratesa werea lower.a Soa toa me,a
thosea factorsa justifieda mya purchase.a Now,a fasta forwarda toa todaya anda Ia ama regrettinga mya
decision.a Nowa I’ma hurtinga ata thea pump,a ata thea grocerya store,a anda evena ona utilitiesa becausea
ofa highera energya costs.a Inflation,a recklessa governmenta spending,a anda aa GDPa that’sa beena
negativea fora thea lasta twoa quartersa alla playa aa largea rolea whena ita comesa toa thea decreaseda
purchasinga powera ofa thea dollar.a Thanka goodnessa mya interesta ratesa area lockeda ina ona mya
paymenta ora I’da havea toa finda anothera thinga toa sacrificea ina ordera toa makea thea payment.a Ia feela
likea everyonea isa havinga toa makea majora adjustmentsa justa toa geta bya righta now.a Ana examplea ofa
aa situationa whena Ia useda TVMa calculationsa toa supporta aa financiala decisiona wasa tryinga toa savea
money.a Decidinga whata thea factorsa woulda bea ina saving.a Tryinga toa figurea outa howa mucha Ia
shoulda takea outa ofa mya checka everya paydaya toa achievea mya goala withina aa certaina timea frame.a
Thisa calculationa helpeda mea determinea howa mucha toa savea toa reacha mya goala ina 6a months’a
time.
Thea TVMa calculationsa Ia useda toa supporta mya financiala decisiona wasa thea formulaa fora
computinga thea timea valuea ofa moneya considersa thea amounta ofa money,a itsa futurea value,a thea
amounta ita cana earn,a anda thea timea framea anda thea benefitsa thisa provided.a Thisa isa whata alloweda
mea toa calculatea thea correcta amounta anda timea toa reacha mya goal.a Ina mya examplea Ia shared,a thea
casha flowa wasa impacteda bya aa loss.a Ia saveda thea moneya Ia needa ata aa price.a Ia havea toa cuta backa ina
certaina things,a sucha asa eatinga out,a buyinga stara bucks,a anda othera itemsa thata Ia woulda splurgea
on.a Buta ina thea enda ita wasa alla wortha it.Wea havea childrena anda area nowa ina aa position,a
financially,a toa discussa savinga fora theira collegea education.a Wea meta witha aa financiala advisora toa
discussa oura optionsa anda howa mucha wea needa toa plana toa save.
Oura sona willa bea goinga toa collegea ina 16a years.a Wea discusseda hypotheticalsa sucha asa tuitiona
anda feesa estimatinga ata $12,000a fora thea firsta year,a provideda thata firsta yeara woulda begina ina thea
yeara 2038a ora 16a years.a Compoundeda fora inflationa overa 15a yearsa whata wea woulda needa ata thea
starta ofa yeara 16.a Wea estimateda oura inflationa ratea ata 4%.a
FVa =a PVa xa (1a +a g)
n
FVa =a $12,000a xa (1a +a 4%)
15
FVa =a $21,611.32
Usinga thea futurea valuea calculation,a wea cana geta ana ideaa ofa thea costa pera yeara witha ana estimateda
inflationa rate.a Wea wenta ona toa determinea howa mucha wea woulda needa toa savea ina ordera toa fullya
funda theira foura yeara collegea educationa anda thea amounta wasa overa $80,000.a Wea quicklya
realizeda thata wea maya nota bea ablea toa fullya funda theira collegea education,a buta rathera givea thema
assistancea eacha yeara toa paya aa portion.Thea timea valuea ofa moneya isa thea concepta thata thea samea
amounta ofa moneya hasa differenta valuesa ata differenta pointsa ina time.a Thea 100$a ina mya walleta
todaya hasa lessa purchasinga powera thana thea samea 100$a Ia hada 2a ora 3a yearsa agoa becausea ofa
inflation.a Ia thinka thata thea firsta timea Ia lookeda intoa thea ideaa ofa TVMa wasa whena wea gota thea
mortgagea toa buya oura firsta home.a Soa whena wea tooka outa thea mortgagea toa buya oura home,a thea
moneya wea borroweda ina aa TVMa equationa isa thea presenta valuea ofa alla thea mortgagea paymentsa
wea werea scheduleda toa paya overa thea nexta 30a years.a Fora thea $287,000a mortgagea fora 30a yearsa
ata ana interesta ratea ofa 2.75a percenta aa yeara ora 0.229%a pera month.a Soa fora thea mortgage,a wea willa
havea toa paya $1852a fora thea nexta 360a months.a Thea firsta casha outflowa ina thisa examplea wasa oura
downa paymenta ofa 15%a froma thea salea price,a thena thea monthlya mortgagea payments.a Buyinga aa
housea cana introducea morea financiala distressa thana originallya meeta thea eye.a Fora usa ita wasa verya
importanta toa nota onlya considera thea homea pricea ata thea timea ofa thea purchasea buta alsoa thea othera
monthlya expensesa thata comea alonga witha owninga thea home.a Beforea wea boughta thea housea wea
budgeteda fora thea mortgage,a anda monthlya costsa likea propertya taxes,a homea insurance,a utilities,a
routinea maintenance,a renovationa expenses,a anda more.a Wea researcheda eacha expensea anda
calculateda thea debt-to-incomea ratioa toa ensurea alsoa calculateda thea debt-to-incomea ratioa toa bea
certaina wea cana takea ona thisa commitment.a Thea timea valuea ofa moneya (TVM)a meansa thata aa suma
isa wortha morea nowa thana thea samea suma ofa moneya ina thea future.a Aa well-knowna ancienta
parablea ina thea biblea mentionsa aa mastera whoa gavea hisa threea servantsa differenta amountsa ofa
talents(money)a baseda ona theira abilitiesa beforea takinga hisa longa trip.a Then,a aftera aa longa time,a
thea mastera returneda toa settlea thea accountsa witha thea threea servants.a a Thea firsta anda seconda
servantsa replieda thata theya hada doubleda thea moneya througha investing,a thena thea mastera praiseda
thema anda awardeda them.a Thea thirda servanta fearfullya respondeda thata hisa sharea hada beena
hidinga ina thea grounda fora safety.a Thea mastera punisheda hima harshlya anda said:a "youa oughta toa
havea investeda mya moneya toa thea bankers,a anda ona mya return,a Ia woulda havea receiveda whata wasa
mya owna witha interests."a Thisa simplea examplea explainsa clearlya thea essentiala concepta ofa
TVM.Ina mya 30a yearsa ofa insurancea career,a Ia havea learneda abouta utilizinga TVMa toa optimizea
numerousa investmenta results.a Fora example:a ifa Ia encountera aa younga couplea witha twoa littlea
children,a whoa wisha toa havea suitablea lifea insurancea toa protecta theira familya finances,a Ia would,a
instead,a offera aa wholea lifea insurancea policya witha aa mucha highera monthlya premiuma witha
yearlya dividendsa toa purchasea morea amounta ofa lifea insurance,a suggesta thea couplea buya aa 30-
yeara terma policya witha aa mucha cheapera premiuma anda savea thea differencea toa investa intoa morea
aggressivea SP500a stocksa ora othera long-terma securitiesa becausea ofa thea historicala recorda ofa thea
growtha fund'sa performance.a Anothera optiona fora thea monthlya savinga isa addinga aa backyarda
housea fora rentala incomea toa takea advantagea ofa California'sa newa ADUa law,a whicha encouragesa
homeownersa toa adda aa backyarda unita toa boosta theira revenuesa anda relievea thea housinga shortagea
issues.
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