The concept that money available today is worth more than the same amount in the future due to its earning potential.
The Time Value of Money (TVM) is a fundamental financial principle that asserts that a dollar today has more value than a dollar in the future. This is due to the potential earning capacity of money through investments, interest, or other financial opportunities. Consequently, understanding TVM is crucial for making informed decisions about saving, investing, and spending. By recognizing that money can grow over time, individuals can better plan for their financial future, evaluate investment opportunities, and calculate the true cost of borrowing. Key formulas include Present Value (PV) and Future Value (FV), which help investors assess the worth of cash flows at different points in time.
A dollar saved today is worth more than a dollar saved tomorrow.
