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value of money

Time Value Of Money And Planning

Understanding the general concept of the time value of money can help consumers plan appropriately for future needs and today’s wants. This concept applies to how a consumer may save, invest and make decisions on lending needs.

Many of us are familiar with the idea that the earlier one starts saving the more he or she will have in the future. This may be the case, but it’s also important to be familiar with present value of money and debt, future value of money and debt, and the beginning period and ending period of saving.

When a consumer considers how these concepts work together, it can provide the consumer with the valuable information needed to effectively plan for the future. A good example is credit card debt. If one were to calculate the length of time and amount of finance interest paid to credit card companies by only paying the minimum payment, it would shock most of us.

Saving for future needs is important. We must understand that the dollars we save today (present value of money) will most likely be worth less in the future. So how can we make decisions to save and take advantage of time value? Let’s consider a scenario of saving for retirement in an IRA (Individual Retirement Account) annually. Investors have a choice to save at the beginning (beginning period) of each year rather than saving at the end of the year (ending period of investing). Using this strategy, an investor can earn more on his or her money by contributing the same dollar amount annually at the beginning of the year rather than at the end of the year.

Investing consistently and taking advantage of different types of accounts sponsored by employers, deferred-tax saving retirement accounts and after-tax saving accounts can help consumers plan for retirement. Many employers offer match savings, as well as company contribution, just for signing up for the employer retirement plan. It’s important to take full advantage of the match. Also, some plans offer both a Traditional (pre-tax) deferred saving as well as (after-tax) Roth saving plan. Each of them has specific benefits, and if used properly, they can be a valuable piece of a consumer’s planning strategy. Keep in mind that withdraws prior to age 59-1/2 may result in a 10 percent IRS tax penalty, in addition to any ordinary income tax. IRA and Roth IRA accounts can also be used in addition to employer sponsored plans.

The traditional employer plan and individual retirement plans allows consumers to save on a tax deferred basis; however, he or she will need to account for ordinary income taxes during distributions. Where as, Roth contributions allow for after-tax contributions and tax-free growth and withdraws. By combining these options, and starting sooner rather than later, consumers can take advantage of the time value of money as well as using all options available.

As consumers, it’s not only important to take advantage of the time value of money by investing early, but it’s also important to manage debt in a similar way. Present debt and future debt are key ingredients to manage and can make or break consumer’s future plans. By applying the same concepts to debt management, one can see the value of using time as a way to structure debt for the consumer rather than the financing institution. For example, be wary of committing to long-term debt. When committing to long-term debt, consider a plan to payoff the debt early by making additional payments. Applying the time value of money in this case will save consumers a lot of money in the long run and reduce debt sooner. Also, keep in mind that lower interest rates will help save consumers finance cost. A little extra planning can greatly benefit consumers.

These concepts can be very valuable with practice, practice and more practice. Consumers can become experts in controlling their way of using time value of money and planning for future needs. For more information, visit jacobgold.com.

Securities and investment advisory services offered through ING Financial Partners, Inc. Member SIPC. Jacob Gold & Associates, Inc. is not a subsidiary of nor controlled by ING Financial Partners, Inc. This information was prepared by Michael Cochell of Jacob Gold & Associates, Inc. and is for educational information only. The opinions/views expressed within are that of Michael Cochell of Jacob Gold & Associates Inc. and do not necessarily reflect those of ING Financial Partners or its representatives. In addition, they are not intended to provide specific advice or recommendations for any individual. Neither ING Financial Partners nor its representatives provide tax or legal advice. You should consult with your financial professional, attorney, accountant or tax advisor regarding your individual situation prior to making any investment decisions.
Tawil in front of Kmart

First Job: Mark El-Tawil, President of Arizona Market, Humana Inc.

Mark El-Tawil
President, Arizona Market, Humana Inc.

Describe your very first job and what lessons you learned from it.
My first job was as a pre-opening stock clerk at Kmart. It was in the small town where I grew up and went to college, and Kmart was about the only place an unskilled worker like myself could get a good job! That job paid 30 cents over minimum wage, the shift started at 7 a.m. — or earlier — daily, we could be scheduled for any day (weekends and holidays included), and we were considered the bottom of the Kmart totem pole — but it was a great first job. I learned the value of money, the importance of working hard and of having a good attitude about work, and that everyone wins when you try to deliver great customer service, as well as the power of positive reinforcement through my Employee of the Month awards (I don’t usually gloat, but that was “awards” — three of ‘em!).

Describe your first job in your industry and what you learned from it.
My introduction to the health care industry came in my first professional position after moving to Arizona. I was an auditor with Deloitte predecessor, Touche Ross, in Phoenix. That was a great first professional job. It introduced me to many industries, one of which was health care, while working among an incredibly talented group of highly motivated, fun-loving individuals. From Deloitte, I left to help build a financial analysis team at a health care client of mine, and after some time advancing through finance roles, including CFO, I moved into the lead general management role. In that position I gained a broader perspective of the industry and the companies in it, and ultimately decided to make the move to Humana in 2008.

What were your salaries at both of these jobs?
Kmart paid $3.65 an hour to start, with a raise to $3.90 an hour after 90 days if you had a favorable review of your probationary period (which I did, thankfully!). As an auditor at Touche Ross, my starting salary was $25,000 a year, and I got company-paid health insurance benefits for the first time.

Who is your biggest mentor and what role did he or she play?
My parents, grandparents and in-laws all played crucial roles in my development as a person, which has enabled me to be a good businessperson. Beyond mentors though, I believe that I have learned, and will continue to learn, from everyone for whom I have worked, as well as from everyone who has worked for me.

What advice would you give to a person just entering your industry?
Be open to and ready for change! This is a dynamic, fast-moving industry in a constantly changing environment, so the ability to foresee changes, the impact of change and to adapt to new environments is critical.

If you weren’t doing this, what would you be doing instead?
I’d either be playing basketball full time (for love or money — this is a fantasy question, right?) or be deep(er) into wine, either as a winemaker myself or … as a buyer for an international beverage conglomerate.