This document provides an introduction to several key concepts in financial decision-making: The time value of money emphasizes that the value of money changes over time due to inflation and interest rates. Risk can be thought of as the probability of expected and unexpected outcomes. Interest rates act like gravity by influencing the value of assets - higher rates lower asset values while lower rates increase asset values. Returns, taxes, and emotions also impact financial decisions and must be considered.

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