What Is a Sum of Money?
A sum of money is a specific amount of coins or banknotes or a total value of a currency. The term can be used in any context involving monetary exchanges or calculations and can range from very small amounts to huge fortunes. A sum of money can be used for investment purposes or to finance a business. It can also be used for personal expenses such as a mortgage payment or to pay taxes.
Calculating the Sum of Money A common business practice is to regularly calculate a company's sum of money (SOM). This helps managers understand their financial standing and allows them to make more informed decisions.
The Time Value of Money A basic principle is that a sum of money can grow only by being invested. If the sum of money is left uninvested over time, its purchasing power will decline because it loses value due to inflation. This is why it's so important to save money and invest in retirement accounts, etc.
The future value of a sum of money can be calculated using a formula that incorporates the present value, the interest rate, and the time frame. This information is useful for making strategic, long-term financial decisions such as determining which cash flow sequence is most advantageous.
If you win the lottery, for example, you'll have to decide whether to receive a lump-sum payment or annuity payments over several decades. Which option is best depends on income tax rates, investment returns, the state where you will reside after winning, and so forth. The lump-sum option is generally better if you can use it to pay off debt or invest the money, thereby increasing its future purchasing power.סכו״ם כסף