The Power of Budgeting and the Time Value of Money – Why Every Dollar Counts
It is crucial to prepare a financial budget to attain various benefits. A personal budget is important in promoting financial discipline and awareness as it forces one to track and monitor expenses closely. As a result, one can identify areas where savings can be made. Further, a personal budget is one that aligns financial expenditure with personal financial objectives (Hastings & Mitchell., 2020). As a result, it is possible to create an emergency fund, pay off loans, and save for a down payment. The time value of money refers to the concept that money available today is worth more than the same amount when received in a future period due to a reduced earning potential in the future (Ahamed, 2020). As a result, an individual will prefer to receive $8 today than a promise of $9 for the future of seven years. Notably, this is so because the 8 dollars can be invested and earn interest, which can go beyond the 9 dollars.
When the time value of money comes from a retirement perspective, it proves worth it. Notably, this is so because the earlier one starts saving and investing for retirement, the more powerful it becomes in the future, considering the aspect of compounding interest. For example, if one invests $5,000 per year starting at the age of 25 while receiving an interest of 7%, the individual will have yielded over $ 1 million by the age of 65. However, this cannot be the case if the individual waits until the age of 35, as he/she would stand to earn only around $500,000. Notably, this example offers support for the relevance of the time value of money in planning for retirement. Achieving the desired lifestyle in retirement is only possible if planning is done properly (Castro-González et al., 2020). As an aspect of planning for retirement, it is essential to start saving early and take advantage of compound growth.
References
Ahamed, N. (2020). Time Value of Money: Concepts and Applications. Indian Journal of
Finance, 14(5-7), 37-43.
Castro-González, S., Fernández-López, S., Rey-Ares, L., & Rodeiro-Pazos, D. (2020). The
influence of attitude to money on individuals’ financial well-being. Social Indicators
Research, 148(3), 747-764.
Hastings, J., & Mitchell, O. S. (2020). How financial literacy and impatience shape retirement
wealth and investment behaviors. Journal of Pension Economics & Finance, 19(1), 1- 20.
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Question 
A discussion question should be answered with a substantial post of 2-3 paragraphs.
Then, it will be followed up with two peer responses that are also substantial responses of 1-2 paragraphs.
Why is it essential to prepare a personal financial budget?
The Power of Budgeting and the Time Value of Money – Why Every Dollar Counts
Explain what is meant by the term “time value of money”. For example, why might it be better to receive $8 today, over receiving a promise of $9 seven years from now?
How should one consider the time value of money when planning for retirement? Please share examples within your response.
The initial post is due by the end of Wednesday; respond to two of your initial posts by the end of the day on Saturday.