Time Value of Everything

Nearly everything changes over time, including value. People naturally change and find different things valuable at different times. That stuffed animal you loved when you were four probably doesn’t matter as much to you now that you’re forty. (At least I hope so!)

The value of money also changes with time. This is part of the reason banks give interest—they’re paying you for their ability to hold your money right now, because money is more valuable to them when invested now rather than in the future. Money itself changes value due to macro forces like inflation.

Even on a personal level, the time value of money isn’t a constant. Would you rather I give you $1000 now, or 1000 inflation-adjusted dollars a year from now? If you think you can beat inflation by investing that money in something, your best bet is to take it now. Even if all you do is spend it, an extra year of using that fancy 1000-dollar gadget probably means more to you than the extra few percent you’d make from interest in that year. (If not, you’d be wise to save your money and spend it next year—the point is that its value to you changes with time.)

Financial advisors like to talk about “investment horizons”, which besides being a really polite way to say “how long until you die” is an indication that what you can do with money depends on how much time you have in which to do things with it. If you’re young, and have a long investment horizon, you can probably expect higher lifetime growth, and don’t need to optimize for the next few years. But if your horizon is near, then you should value shorter-term investments more, since that’s when you’ll need the payoff by.

Information also has higher value when you have more time in which to apply it. The more you invest early on, both financially and in your own knowledge, the higher your payoffs will be. Essentially any kind of investment, whether real estate or in your own education, will pay off more if it has more time to do so.

Is there something that has higher value when you have less time? I think many things become more precious to us when we’re about to lose them. For example, say you know you’re moving across the country in a month. In the final week, I’d expect you to spend more time with your friends, because you know that won’t be as easy to do anymore in a short while. The felt value of things we care about is higher when we approach a known end to those things.

One of my favorite things to do is go meta, so what about the time value of time? When you’re young, each year is a huge percentage of your overall life, so time might seem slower (I’m not sure I believe this). There’s also the effect of having more years in your memory—being able to traverse 50 years in an instant by remembering is very different than having to experience 50 years as they come.

The time value of time probably doesn’t only increase or decrease throughout our lives. Sometimes we’re really busy and wish we had way more of it, but other times we’re incredibly bored and wish the hours would go by faster. All I’m really sure about is that the time value of things we value changes all the time.


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