Menu
Elaine Allan
  • About
Elaine Allan

Time Value of Money

Posted on July 14, 2021July 14, 2021

What is the Time Value of Money?

The time value of money is the idea that the money you have now is worth more than the same sum in the future because of its potential earning power. 

Investors and the Time Value of Money

Most investors would prefer to receive money today rather than the same amount some time into the future.  This is because investors know that money has the potential to increase in value over time if invested with financial skill. 

Why is the Time Value of Money Significant?

The time value of money idea is important because it can influence investment choices.  For example, an investor could be faced with deciding about investing in two projects that seem identical but are different when the time value of money concept is applied.  When the investor learns that one project promised a 20% payout in year 1, and the second project offers a 20% payout in year 5, the time value of money concept would let the investor know that the investment that would pay out the 20% profit in year 1 is more attractive than the second investment because it has a higher present value.

Personal Decisions

In your personal finances, you likely make decisions based on the time value of money concept fairly regularly. If you invest money in a financial instrument like a Guaranteed Investment Certificate (GIC) and calculate the accumulated interest you plan to earn over a stated amount of time, you have determined the future value of the investment based on the amount of interest that will be compounded. Investments like this are great examples of using the time value of money in a personal finance scenario.

Elaine Allan, BA, MBA

Technology & Business Blogger

Vancouver, BC, Canada

Share on Social Media
twitter facebook pinterest linkedin tumblr reddit emailwhatsapp

Related

Sign Up for Newsletter




/

( mm / dd )


Recent Posts

  • Thank you!

    Thank you!

    October 24, 2022
  • Danielle Smith's Proposed Alberta Sovereignty Act

    Danielle Smith's Proposed Alberta Sovereignty Act

    October 23, 2022
  • A Champion for Vulnerable Women on the Downtown Eastside by John N. Ahern

    A Champion for Vulnerable Women on the Downtown Eastside by John N. Ahern

    October 23, 2022
  • Hon. KerryLynne D. Findlay, KC, PC (Endorsement)

    Hon. KerryLynne D. Findlay, KC, PC (Endorsement)

    October 12, 2022
  • Doxxed by City Hall

    Doxxed by City Hall

    September 17, 2022

Tags

Daryl F. Zanuck Google head of 20th Century Fox in 1946 Internet Social Media The importance of buyers
Follow us on Social Media
twitter

Contact Me

I want to hear from you.

Elaine@ElaineAllan.com

 

Privacy Policy

Meta

  • Register
  • Log in
  • Entries feed
  • Comments feed
  • WordPress.org
© 2022 - Elaine Allan Technology & Business Blog