Why when you get your money matters as much as how much money. Present and future value also discussed. Created by Sal Khan.
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Finance and capital markets on Khan Academy: If you gladly pay for a hamburger on Tuesday for a hamburger today, is it equivalent to paying for it today? A reasonable argument can be made that most everything in finance really boils down to "present value". So pay attention to this tutorial.
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What is Time Value of Money and more importantly, how does it affect your personal finance? The time value of money (TVM) is an important concept to investors because a dollar on hand today is worth more than a dollar promised in the future; the dollar on hand today can be used to invest and earn interest or capital gains. Read More Here:
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You must already know the amount in the future you are solving for (the amount and the interest you expect to make.
You must also know the interest rate. You divide that total by (1 + interest rate as a decimal) to reach how much you must lay out now to reach that future amount...
It's not an "each year" calculation. It's one calculation done on, say , year 5, for example (where you already know the total cash layout and interest you expect to get in year 5) and you divide that total by (1+iterest rate as a decimal) to reach present value.
Take into consideration that money is taxed (interest rate paid by the bank). Factoring taxation and inflation, the money you make off interest (in small sums) is essentially irrelevant. So actually make money in this fashion, you'd have to save large sums. IMO, you're better off investing your money elsewhere...
Money, past present and future. See YouTube video "12 Money, the game of life".
Economics, banks and money explained for kids. See YouTube video "Money Simplified".
How money markets work and their effects on countries. See YouTube video "Money Markets Simplified".
How money speculators play havoc with people`s lives by gambling with their money. See YouTube video "Money speculators, Simplified".
@kristopheraugust It's already failed to be accepted by the scholars on the topic. If you want to beat your head against the right brick wall, go find one of them who's willing to waste some time (akin to biologists who would waste their time debating one of the hordes of creationists rather than actually doing research).
Academia has well-established ways of tossing out the kooks. If you want back in, don't expect fancy wordplay in debate to help. Scientists don't usually debate, they publish
@mrhnm That's an extreme minority opinion. Austrian economics is based on a view of human nature that's incorrect (praxeology), and it has no predictive power and little impact in academia apart from what's been attained through donations of clueless libertarians. Sal would be wasting his time to teach it.
@nicochunger The little hand "mouse" is easier to see when he is pointing to something. The other cursor is difficult to see. Either i have to improve my eyesight or you have to get over your irrational fear of pixels:)
Time preference plays an important role in setting interest rates. If there was no interest, there would not be any (financial) incentive to forgo current consumption for later satisfaction. Immediate satisfaction is more preferable than delayed but Fiat money can distort the true state of economic conditions.
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