TIME ' S POTENTIAL chocolate bar priced at R15 , but when you return a year later , the same chocolate bar now costs R17 . What happened ? Inflation stole some of the value of your money !
Inflation is the general increase in prices over time . It means that the same amount of money will buy you fewer goods and services in the future . To protect your wealth from the ravages of inflation , you need your money to grow at a rate higher than the inflation rate . This is where investing comes into play , helping your money keep pace with – or even surpass - inflation . Inflation , or the loss of purchasing power , also brings with it the illusion of wealth . Many topics around the braai would be about a house being sold for R2m when it was bought for R800 000 a few years back . Keep in mind that if the growth did not keep pace with inflation , the storyteller did not make any money at all .
Opportunity costs : The dilemma of choices Opportunity knocks , but only once ! The concept of opportunity costs reminds us that by choosing one course of action , we sacrifice the potential benefits we could have gained from making a different choice . Let ' s say you have R50 000 , and you ' re contemplating investing it in the stock market . However , you can also spend it on vacation in a tropical paradise .
If you decide to invest in the stock market , the opportunity cost is the loss of the experiences , memories , and relaxation you would have enjoyed on that vacation . On the other hand , if you choose the vacation , the opportunity cost becomes the potential gains you could have earned from your investment . It ' s all about weighing the pros and cons and making decisions that align with your goals and priorities .
Delaying when you start investing is also an opportunity cost , as money can only grow by investing . The sooner you start investing , the more you ' ll be rewarded . Have a look at this calculator as proof .
Basic Math of the time value of money The basics of the time value of money have five inputs . You will generally have four of these inputs and are looking for the fifth . The five inputs of time value of money are : 1 . PMT ( Payment ) - Are you
SA Real Estate Investor Magazine AUG / SEPT 2023 64