The Time Value of Money

The time value of money is the idea that a dollar today is worth more than a dollar in the future because of its potential to earn interest or returns over time. Essentially, money available now can be invested and grow, whereas future money is less certain and less valuable in present terms. This concept helps in making decisions about investing, lending, and borrowing, emphasizing that timing affects value. It underscores why, for example, receiving $100 today is preferable to receiving the same amount a year from now, since you could invest today’s money to increase its worth.