Don’t

I am presenting this section on behalf of my colleague, Dr. Myat Mon Thein.

After knowing what we should do for saving money, I would like to share about what we
shouldn’t do in saving money. First of all, we need to eliminate our expensive habits like
drinking and gambling. People usually become broke because of those habits. These
habits can also make a person unhealthy causing him to lose more money. Moreover,
we should cut our expansive hobbies like collecting cars and phones. It is like spending
on the unnecessary things and we should focus on avoiding buying large and non-
useful items for us. Furthermore, the habit of shopping spree is very dangerous for a
person financially. Everyone should focus on spending according to their budget and
buying the things which are absolutely necessary for us. Then, we can save or invest all
the extra money for the future. The next thing I would talk is about taking consideration
about time value of money in saving money.

Time Value of Money Script

First Slide
When we are saving money, our goal is to build up enough money for the future use.
We are not intended to use that money today. So, we need to keep in our mind about
time value of money. We need to know what is it? Why is it so important for saving?
Time value of money means that the money we have in our hand today is worth more
than the money that will be available in the future. For example, 100 dollar in our hand
today would worth less than 100 dollar in the next year.
This time value of money is also related to the inflation concepts. The price of the
product/service would rise over time because of inflation and the value of money would
decrease over time. So, the money we have is worth more today than in the future. We
need to know the inflation rate while we are doing investment for saving. If the inflation
rate is higher than the rate of our investment return, we are actually losing money in
terms of purchasing power although our investment shows a good positive return.
For example, if our investment return would be 10%, but the inflation rate is 20%, we
are losing 10% in purchasing power every year. Purchasing power is the capability of
buying with a certain amount of money. With time, purchasing power is reducing
because of the increasing inflation rate. It means that if we can have a fine dining two
times with 100 dollars, we would not be able to have fine dining two times with that 100
dollars in the next year.
So, only an appropriate investment can maintain or increase the value of money
over time. If it is not invested, the value of money erodes over time. If we hide 100,000$
in a safe box for three years, we will lose the interest which would have earned over that
time if we have invested it. Moreover, the buying power of that 100,000$ would be
reduced after three years because of the inflation rate.
Second Slide
Therefore, by knowing time value of money concept and related concepts, we
would be able to see the financial impact of every financial decision we would make. It
would also help us in planning our financial goals and overcoming financial challenges.
Furthermore, it would help us to compare and evaluate two or more investment options.
We can also use this concept when we are buying insurance. We can use time value of
money concept to evaluate an insurance proposal. In that proposal, the offer of giving x
percentage of return may look quite attractive on the surface. But, when we know about
the present value, inflation rate and future value, it may not be as attractive as before.
Moreover, we can also apply the concept in our daily life. If we plan to buy a property
and then rent it out, the TVM concept can also help us know the rental amount we
should charge. If we are planning to buy a property in the future, TVM can also help us
to know how much we need to save money.