I’m working on a management multi-part question and need guidance to help me study.
Unit 4 discusses the concept of The Time Value of Money. Whether we notice it or not, this is something that effects us in our daily lives and personal finances. More specifically, saving for retirement. Not only do we (hopefully) save for our own, but as managers we encourage employees to save as well. The majority of us have available to some sort of a tax-deferred plan such as a 401(k), 403(b) if you’re not-for-profit/education, or a TSP for federal/military and state government employees. Theses plans all function in the same manner for the most part.
The earlier we start saving with today’s dollars the more we should have in the future thanks to things such as compound interest. For this week, think about having an extra $10,000 for whatever reason (lottery, inheritance, gambling, found in a mattress). After a lot of thought you are faced with three decisions
- You can either spend the money today
- Stuff it in a coffee can and wait for a rainy day
- You can invest it in a retirement savings account that has a 6% return (Interest)
Use an on-line retirement calculator, most large brokerage firms will have free ones (Fidelity, Vanguard, T.Rowe Price) or a website such as Personal Capital.
Then answer the following questions:
- What is the $10,000 worth in 30 years if invested today?
- What is the $10,000 worth in 30 years BUT you waited 5 years to start investing?
- What is the $10,000 worth if in 30 years BUT you waited 15 years to start investing?
- Are you surprised at the results? Did you think the results would be higher or lower?
- Explain how this relates to the concept of the Time Value of Money
- Will this change how you save for retirement/make you start saving/save more or less?