Date: 2026-07-02, Thursday, 11:42 PM
Tags: Learn new financial topics
The money today is worth more than the money tomorrow. Inflation plays a role, but that’s not the only thing.
Say if I invested the money today at 10% annual return, the 50K today would be Rs. 55K next year, and if I invest that 55K at 10% return, it becomes Rs. 60,500 and so on.
This follows the Converse Rule as well:
- Me earning 50K 2 years later is less than me earning 50K today. Because 50K today would have compounded.
The 50K I receive after 2 years is actually worth less that today’s 50K.
- PV = Present Value (what you have now)
- FV = Future Value (what it becomes later)
- r = rate of return per period
- n = number of periods
The above is the compound interest formula I read in class 8. It applies to me today.
PV = 50K r = 10% n = 1 (i.e, 10% annually for 1 year) FV (for next year) = = 55000
Similarly,
So, say that I get paid Rs. 50K after 3 years, so let’s calculate PV. FV = 50K r = 10% n = 3 (assuming that if I had some money, I would have invested with a steady return of 10%)
= = 37565.74
So, 50K of 2029 (today is 2026), is 37565.74 of 2026.
How can it affect me? In long term projects, it matters if I get paid today or a year later. Best option is today.
Also, between two offers that pay 50K upfront and 50K a year later, I should take the one that offers now (considering that I invest wisely).
Also, what I’m realising is that the goal needs to be to earn money immediately from any source anyhow. Then investing matters.
Claude’s another example: Remember your own client example: Rs. 60,000 today vs. Rs. 70,000 in 6 months. Let’s actually run it, since you never finished that gut-check:
PV of Rs. 70,000 in 6 months (n = 0.5, r = 10%) = 70,000 / (1.10)^0.5 ≈ Rs. 66,733
That’s more than the Rs. 60,000 offered today. So here, waiting 6 months is actually the better deal.