The Time Value of Money Trifecta.
Simplicity. Consistency. Connectivity. Before these words were inked, they were the unspoken rules of engagement for the mental project that later became a physical book.
I’ve written about the TVM Rules before. If you were thinking about writing them off, take a look at them with a fresh set of eyes. If you’re new to this blog or haven’t read my book Would Your Boomerang Return?, maybe this is the first time you’ve heard about these original TVM Rules.
This image was created with the assistance of DALL·E and prompts from Brent Pritchard.
Here’s an excerpt from my book Would Your Boomerang Return? What Birds, Hurdlers, and Boomerangs Can Teach Us About the Time Value of Money (2023):
Doing any of these is a Time Value of Money no-no:
Add or subtract or compare money in different points in time.
Fail to correspond the time span in between periods or payments (on the timeline) and the time span of the true investment yield.
Neglect to consider different payment types and signs.
The order is on purpose and by design, because it gives us the mnemonic indifferent that helps us easily remember the three TVM Rules. Below, instead of finding the “no-no” language, you’ll find a few minor and inert changes, including the words Time and Value and Money, to get you thinking about how the TVM Rules can also be remembered by recalling “Time,” “Value,” and “Money,” in that order:
Time: Consider money in different points in time.
Value: Correspond the time span in between periods or payments (on the timeline) and the time span of the true investment yield.
Money: Consider different payment types and signs.
Let’s once again reframe the TVM Rules, this time to include the five primary TVM financial calculator keys and the variables in the building block Time Value of Money equations:
N: money in different points in time.
i: correspond the time span in between periods or payments (on the timeline) (n) and the time span of the true investment yield; and
PV, PMT, and FV: consider different payment types and signs.
This is what I call the Time Value of Money trifecta!
How’s that for simplicity?
Brent Pritchard is an author and college finance lecturer with over two decades of industry experience and cofounder of Boxholm Press, LLC, a family-owned-and-operated publishing company providing educational content, products, and services. He pioneers an innovative and approachable new way of learning and teaching the Time Value of Money as well as thought leadership in other business topics. His most recent book is Would Your Boomerang Return? You can contact him on his website here.