Relative Value of Money

The value of money relatively differ depends on where, when and how you measure it. It boils down to the following question to relatively determine the value of money.

Where is your money?

Photo by noahwesley

Where you put your money determines how much value it has, in the future. Put it in bank, your money is relatively lower compared to putting it in investment. If you have your money set aside long term in a great company, or in a real property located at prime areas, the value of your money is relatively higher.

For example, you have RM1000 in a fixed deposit giving you 4% return p.a., after 10 years, the value is RM1,480.24. If you invest it wisely now, in an investment vehicle that gives you 15% average return p.a., the future value is RM4045.56. It is much higher than putting your money in FD.

So, where you put your money really matters. The poor remain poor if not poorer, just because they don’t know where to put their money.

Where do you earn and spend your money?

Let’s say you have RM1,000 in your pocket to spend. You can do many things or purchase many stuff in certain parts of China. But for merely RM1,000 in Europe, you may spend it all on food within a few days.
That’s why you know some people work hard at other more developed countries, and save hard so that they have more money when they go back to their home countries.

• Indonesians work in Malaysia as maids.
• Some Indians workers are willing to work 12 hours a day, 364 days a year in Malaysian’s nasi kandar restaurants.
• Some Malaysians work illegally in UK as kitchen helpers.
• Filipinos, Indonesians, Indians and Sri Lankans work as domestic helpers in Singapore.
• Thais, Indians, Chinese work in construction industries in Singapore and Malaysia as construction workers.
• IT professionals from India, China, etc work in US, Singapore, Europe for a number of years before moving back to their home countries.

That’s why it is great to free yourself, and being mobile while at work, so that you can earn US or Europe dollar, while living in China. The relative value of money is giving you a high purchasing power.

When do you earn and spend your money?

Photo by gato-gato-gato

Money’s value is correlated to time. That’s why there are text books and courses about the time value of money. RM1,000 now may be many fold more in value than RM1,000 20 years later. The longer you can defer, or afford to defer, it is better in terms of increasing the value of your money.

The rich know that you need to earn money as early as possible, and spend it as late as possible. There is no secret indeed. You just need to make and save a lot of money now, and spend just a little portion of it. Later on, you will have more money to spend even though you work less than you used to be.

Refer to my articles on some time value of money tutorials and computations:

• How to calculate the value of single sum investment {Time Value of Money Tutorial}
• Finding the Rate of Return to Meet Financial Goals {Time Value of Money Tutorial}
• Computing the Value of a Fixed Sum Invested Regularly {Time Value of Money Tutorial}
• How to Calculate the Effective Annual Rate (EAR) [Tutorial]

How do you earn and spend your money?

Photo by johnnyvulkan

John’s income is RM500/hour. But Lim’s income is RM10/hour. John is better paid than Lim. So John can easily afford a new RM2500 mobile phone. But to Lim, it is 250 hours of hard work to have the purchasing power for the same phone. So if you increase your earning ability, you relatively have better value.

On the other hand, if John spends 150% of his income ( the additional 50% on credit card debt), but Lim only spends 10% of his total income, the value of money is different relatively. For Lim, RM1000 made is equal to RM900 saved. For John, RM1000 earned equals to RM500 owed to the credit card providers.

Now, what do you know about the value of money?

Now you’ve learn the relative value of money. If you want to be rich and feel financially secured,

• Put your money at a better investment vehicle, that gives you better returns in the long run
• Earn money of greater value and spend money at places with lower living cost
• Save your money now, and spend it later. (Later means when you really need to)
• Stop living from paycheck to paycheck. Live frugally and earn abundantly.

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