Time is money
In this article, Pranay KUMAR (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2022-2023) comments on a quote about the time value of money.
Quote
“Remember that time is money.” – Benjamin Franklin
Analysis of the quote
Time value of money is the concept that the value of money changes over time due to various factors, such as inflation, interest rates, and the opportunity cost of investing or borrowing money.
In the context of Franklin’s quote, he is suggesting that time is as valuable as money. This implies that every moment lost is an opportunity lost, just like losing money. This is because the time we spend on an activity or investment can have an impact on its potential future value.
For instance, if we invest money today, it will grow in value over time due to interest and compounding. Therefore, the longer we wait to invest, the less potential value we can derive from that investment. Similarly, if we delay taking action on an opportunity, we risk losing its potential value as time goes by.
In summary, Benjamin Franklin’s quote can be interpreted as a reminder to be mindful of the time value of money. We should strive to use our time effectively, just as we would with our money, in order to maximize its potential value.
About the author of the quote
Benjamin Franklin was a Founding Father of the United States and a polymath who excelled in many fields, including science, writing, and politics. He was also an inventor, diplomat, and one of the most influential figures of the American Enlightenment. Franklin was known for his wit, wisdom, and practical advice. This quote reflects his pragmatic approach to life and his belief in the value of hard work and frugality. Franklin was a self-made man who rose from humble beginnings to become one of the most respected and admired figures of his time.
Financial concepts related to the quote
Time Value of Money
The concept of time value of money suggests that the value of money today is worth more than the same amount of money in the future, due to the potential for earning interest or returns on investment.
Compounding
Compounding is the process of earning interest on interest. It occurs when interest is added to the principal amount, and the interest earned on the new total is calculated in the next period. This results in the investment growing at an accelerating rate over time.
Opportunity cost
Opportunity cost is the cost of forgoing an opportunity or the benefits that could have been gained from an alternative choice. In the context of the quote, the opportunity cost of not investing earlier is the potential returns that could have been earned if the investment had been made earlier.
My opinion about this quote
I believe this quote is a reminder that it is never too late to start investing or saving. While it is true that starting early provides an advantage in terms of the time value of money, it is better to start late than never. By taking action now, individuals can still benefit from the power of compounding and the potential for returns on their investments.
Why should I be interested in this post?
This post is relevant for ESSEC students interested in finance and investing. The concept of time value of money is fundamental to understanding financial decision-making, and this post provides a simple explanation of the concept and its relevance in real life.
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Quotes
▶ Jianen HUANG It’s not whether you’re right or wrong
▶ Fatimata KANE Money is a terrible master but an excellent servant
Financial techniques
▶ William LONGIN How to compute the present value of an asset?
▶ Maite CARNICERO MARTINEZ How to compute the net present value of an investment in Excel
Useful resources
About the author
The article was written in April 2023 by Pranay KUMAR (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2022-2023).