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MyFinMaps
Global conceptsFoundations1 min read

The time value of money

Why a sum today is worth more than the same sum in the future, and how this idea underpins every financial decision.

A core idea in finance: money today is worth more than the same amount in the future, because today's money can be invested to grow.

Present and future value

  • Future value — what an amount today grows to. 1,000 at 6% becomes about 1,791 in ten years.
  • Present value — what a future amount is worth today. The promise of 1,000 in ten years is worth only about 558 now at 6%.

The link between them is your discount rate — roughly the return you could otherwise earn.

Why it matters in real life

  • Borrowing: interest is the price of getting money sooner. See good vs bad debt.
  • Choosing offers: a lump sum now versus instalments later can be compared by discounting.
  • Retirement: small contributions early are worth far more than larger ones later, thanks to growth over time.

Key takeaway

Every "pay now vs pay later" or "invest now vs wait" choice is really about the time value of money. The sooner money is working for you, the more it can become — the mathematical heart of compounding.

Up next

Emergency funds: your financial safety netWhy a cash buffer for the unexpected is the foundation of a healthy financial plan — and how much to hold.Understanding net worthThe single number that captures your financial position — what you own minus what you owe — and how to grow it.

General educational information, not financial, tax, or investment advice. Consider your own circumstances and consult a qualified professional before making decisions.