Time Value of Money

Have you ever wondered how much your money will be worth 5, 10, or 20 years from now? The Time Value of Money (TVM) principle shares the effect of interest on the monetary value of your loan or investment. The basic premise of TVM states that as long as money can earn interest, money is worth more the sooner it's received. In other words, a dollar now is worth more than a promised dollar in the future due to the investment potential your dollar has.

So what does this mean for you?

If your money is worth more now, then you'll want to take steps to save money now, pay off your loans, and stay out of debt. As you complete this process, you'll be able to use the money you save to invest in the future. By investing your money now, it'll accrue interest and provide you with much more money. If you wait to pay off your loans and use that money to invest, the money you invest in the future will be worth much less because it'll not have nearly as much time to accumulate the interest it would have if you had invested it sooner.

Calculators

All of this information about the time value of money may sound interesting, but how do you use this information to calculate the worth of your investments and the impact of your loans on your future finances? Below is a link to a time value of money calculator that may help.

• MSN Time Value of Money Calculator- You can adjust several variables and it'll provide a graph to help you better visualize the value of your investment over time.

While we don't endorse any specific calculator, website, or financial institution, we find that the above calculator is helpful in beginning your own research on this subject. If you have any questions or concerns, please speak with a trusted financial professional or contact us.