When I was a child, I knew that when I deposited my money in the bank, the bank would pay me extra interest. I suddenly came up with the idea that I would ask someone else for a sum of money and deposit it in the bank, and I can take a profit with doing nothing else.
At that time, my thinking was still at the stage of “borrowing one thing, and only need to return it to him.” However, for money, the logic is obviously not that simple.
In a lending activity, the borrower must have a purpose. In simple words, the purpose of the borrower can be summarized into two types, one is to solve the problem, and the other is to make more money. The former refers to consumption (such as purchasing a mobile phone), contingency expenditure (such as paying for medical expenses), and the latter is used as capital for production, operation or investment. Summarizing with a slightly more professional term, the former is the expense, the latter is the cost.
But whether it is the former or the latter, the funds flow from the lender to the borrower. Since the borrower can use it as expense or cost, it means that the lender cannot use it as expense or cost during the loan period, which cannot solve the problem, either make more money. In order to compensate the lender, interest is very necessary.
This is the so-called "liquidity compensation." The lender lends the money to the borrower and loses the liquidity of the money, so the borrower pays the lender interest as compensation.
Of course, most of the lending behaviors are around the purpose of “making more money”, especially for large amounts of lending. In this part, as capital can proliferate, the time value of money comes into being. Today's one dollar is not the same as one dollar a year later, because today's one dollar can produce more money, and will be more than one dollar a year later.
So, time is money.
However, when we talk about this, time is money when you have money.
If you have one dollar, you may have 1.1 dollar after a year, and your one year worth 0.1 dollar.
But if you have one million dollars, you will have 1.1 million after a year, your one year worth 0.1 million.
Obviously, this is a process of cumulative growth in a cycle. The more valuable your time is, the more money you have; the more money you have, the more valuable your time is, and so on. Moreover, this law is not limited to lending behavior, but is more suitable for the growth of individual abilities and qualities: the stronger the ability, the more valuable the time.
In short, this is a curve that will grow faster as it grows later, and this accumulation will be slower at the beginning. Although that cannot be changed, but the correct choice can make your growing faster, for example:
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