Financial decision-making

1. Financial Decision-Making
A Brief Introduction

2. Time Value of Money
• Emphasis on ”Time” and ”Value”.
• R1 today is not worth R1 in 10 year time!
• Look at the price of a T-bone steak in 1973!
• You are fighting inflation whether you choose to
or not.
• Interest rates are how value money over time.
• Below is a good explanation.
• https://www.youtube.com/watch?v=733mgqrzNK
s&t=1s

3. Risk
• There are a number of ways to think of risk:
• The probability of something happening.
• The probability of something not happening.
• Either of the above not happening to the degree you
desire.
• Either of the above not happening when you desire.
• Managing risk is complex.
• In finance we often use Standard Deviation as a
basic measure.
• Question: Would you leave R10m with a friend or a bank? And why?
Tara Model

4. Interest Rates
• Think of interest rates, in general, as gravity.
• Higher = lower values for asset
• Lower = Higher values for asset
• Why? – If you can answer “why?” to the above, you
understand the time value of money.
• Discount rate (background reading):
https://www.investopedia.com/terms/d/discountrate.asp

5. Returns
• How does money “work” for you?
• Why not leave under your mattress (risk anyone)?
• Why is it so important that your money grows?
• Note: The above are linked by TVM and Risk.

6. Taxes
• ”Government is everyone’s silent partner” (not so silent in our case).
• When you value assets, it is usually on an after-tax basis.
• Tax avoidance and tax evasion – one is legal, and one is not. Read up
on the difference!

7. Emotions
• Nothing will set you back financially more than emotions.
• Probably the least discussed, yet one of the most important
• There are no textbooks, only experience.

8. References
• 1973 Menu: https://showme.co.za/east-london/news/1973-spur-menu/
• Time Value of Money: https://www.youtube.com/watch?v=733mgqrzNKs&t=1s
• Tara model: https://thecimastudent.com/2016/10/21/cima-e2-risk-management/
• Return: https://www.tomorrowmakers.com/financial-planning/short-term-
investment-options-high-returns-article