Business

MONEY and YOU Let’s Get You Friendly

by BTM

Wed, 07 August 2024

MONEY and YOU Let’s Get You Friendly

In this month’s edition of ‘Money and You’, Pria Masson acquaints us with inflation, value of money and other concepts that influence our money decisions.

I recently conducted a workshop on financial freedom for women and one of the things that stayed with me was a question: Are there certain businesses that just may not make money and that you should stay away from? What got me thinking was my own answer: Yes, if the numbers say so, because numbers don’t lie. 2+2=4 and that’s a universal truth. If you spend two and make nothing, that’s a loss of two. Numbers are a language that can be trusted always. Our relationship with money is one aspect, but, understanding the basics of money and numbers itself is non-negotiable.

I will start with the most basic concepts that most of us know:

What is inflation and value of money?
Remember money acts as a tool to access goods and services. By extension, the value of money is how much you can buy. Earlier, I’ve mentioned that money is a finite resource. What this means is, the only way to increase money, is to earn it (including inheritance). However, money loses its value in more than one way. You could spend it or, if you keep it in a bank/cash, then over time, with inflation, the value of that money will go down. What that means is, if you could buy three outfits for that money when you kept it aside, you may be able to buy just two at the time that you wish to spend it. The adage, “money saved is money earned” only holds true if inflation doesn’t exist or if you convert that saving into an investment that earns more than inflation. 

Why is money today worth a different amount than money tomorrow?
The other concept to remember is time value of money which says that “money today is worth more than money tomorrow”. Why is that? Because we do not know what the future holds, and we do not know the actual purchasing power of money in the future. We do know its value today. So, we assume that the risk of the unknown lowers the value of money in the future. Essentially, 100 needed in one year could mean you need to keep aside just approximately 90 (assuming 10 percent inflation).  

What are interest rates?
It is nothing but the price of money based on a banks assessment of the specific risk that you carry. Essentially, if you are a very low risk customer or a no-risk customer, you pay the lowest interest rate and if you are a startup with no collateral, you pay a higher interest rate.

How does all this add up?
If you need financing, personal or professional, use the above concepts to understand how much money you need depending on when you plan to spend that money. If there is a way to delay taking that money because you need it later, you may choose to take it now (as an added security measure) but, be aware that doing that adds a price. Finally, when planning for long term expenses and figuring out how much to need to save today, use the above concepts and then fill in inflation and use future rate calculators available online to realise how much you really need today. 

Pria is an experienced business consultant who works as a business coach and advisor helping clients with their strategy, business plans and idea assessments. You can follow Pria at her Instagram handle @guide¬_my_idea and know about her experience at www.priamasson.com

#FINANCIAL EXPERT #BTM AUGUST 2024 #BUSINESS #MONEY