What is the time value of money (TVM)? This means that a dollar is worth more today than it would be in the future.
How can a dollar be worth more today than in the future? Great question!
If I gave you $100 today you could invest it or deposit it in a savings account which would potentially allow it to grow and become more valuable. So, if I gave you $100 today and you deposited it into a savings account with a 1% interest rate, then you would have $101 a year from today. Alternatively, if I gave you $100 a year from today it would still only be worth $100.
The more time you have to invest the dollar the more time it has to accumulate value. If you earn $30,000 per year and invest 10% of your income for 30 years and earned a 6% rate of return (hypothetically), then you would have $237,175 at the end of those 30 years.
TVM shows why it’s important to begin saving for retirement early. Time is on your side.
