Financial Planning

Financial Planning

Time value of Money

When we talk abut he time value of money, it basically indicates the value of a certain amount of money in different time span. Future value of the amount is the value which the amount will bear in future date. However on the other hand present value denotes the value of a future amount in terms of the today's rate. These values are determined by interest rate or cost of capital. This rate determines the changes in value of money over the period of time which helps in both finding the present and the future value of the given amount.

Decision criteria should include an index, a measure of equivalence or a baseline that summarizes the significant differences between the various proposals. Relationships and equations developed here are the necessary elements that compare two or more alternatives that have the same or different useful lives. The data required include the initial investment, operating costs uniform or irregular residual value and useful life. Alternatives that can be obtained are the result of the evaluation of different sums of money in relation to different periods in the life of the alternatives. To help make the best choice, these alternatives should be reduced to a common time base, that is to say, it must be compared to the same point on the time axis. Bases for comparison are the most common:

Present value: comparison of equivalent amounts at the present time

Annual costs uniforms: the comparison is made between uniform annual equivalent amounts at the end of the year (time base: one year)

Capitalized: the comparison is made on the premise that the funds are available to replace equipment after its useful life is completed (time base: infinite)

Personal Financial Planning

When we talk about personal financial planning, it basically deals with the phenomenon of saving and investing money ...