THE PAYBACK PERIOD METHOD IN PERSONAL FINANCE: APPLICATIONS AND IMPLICATIONS FOR FINANCIAL DECISION-MAKING
DOI:
https://doi.org/10.5281/zenodo.20848603Abstract
Personal finance represents an essential component of the financial well-being of individuals
and households. In the contemporary environment, people are constantly required to make financial decisions
related to education, housing acquisition, savings, investments, borrowing, and other aspects of personal
financial management. The effectiveness of such decisions depends not only on the level of financial literacy
but also on the ability to apply financial analysis methods to evaluate potential costs and expected benefits.
One of the simplest and most widely used methods for assessing investment efficiency is the Payback
Period (PP), which measures the time required to recover the initial investment through future cash inflows.
Due to its simplicity of calculation and ease of interpretation, this indicator can be applied not only in corporate
finance but also in personal financial decision-making.
The purpose of this study is to analyze the applicability of the Payback Period method in the field of personal
finance. The research is based on a review of academic and educational literature on personal finance, financial
literacy, and investment appraisal methods, as well as on the examination of practical examples related to
investments in education, energy-efficiency improvements, and lending relationships between individuals.
The findings indicate that, despite certain limitations in its practical application, the Payback Period method
has several advantages and serves as an accessible tool for evaluating personal financial decisions. It enables
individuals to compare alternative investment opportunities, assess the time required to recover invested funds,
and support more informed financial decision-making. The results further suggest that the use of the Payback
Period indicator may contribute to improving financial literacy and enhancing the quality of financial decisionmaking
at both the individual and household levels.
Keywords
personal finance, financial literacy, investment appraisal, Payback Period, financial decisionmaking, household finance, cash flow, investment evaluation.References
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