Time Value of Money

What is TVM and Why is it Important?

Time Value of Money (TVM) is a financial principle that money today is worth more than money later. We will take a deep dive into what this means, and why it is vital to know for financial success.

Finance's Greatest Asset: Time

Time is a finite and valuable resource that can not be replenished
- This is why investing and understanding the power of compound interest is crucial to achieving financial freedom.

Compound Interest

Compound interest can be defined as: The interest accumulated on interest.
We can use the power of compound interest and investing to make your money work for you.
As compound interest is a form of exponential growth, this means that the longer the time period, the greater return per pay period.

Principal Value (PV) = $100

Interest (R) = 5%

Number of Periods (NPER) = 15 Years

Final Value = 211

Principal Value (PV) = $100

Interest (R) = 5%

Number of Periods (NPER) = 30 Years

Final Value = 447

What does this mean?

With the same principal value and interest and double the time of compounding, the final value is more than double.
This proves that the interest compounds far more effectively the longer you hold on to your money.
The longer the investment horizon, the more pronounced the effects of compounding, making early investments more advantageous.