The Time Value of Money: Why ₹100 today is worth more than ₹100 tomorrow

Imagine someone offers you ₹100 today or ₹100 a year from now. Which would you choose?
Most people instinctively say today, and they’re absolutely right, but why?

Welcome to the Time Value of Money (TVM) which is a simple yet powerful concept that drives everything from investing to loan repayments.

What Is the Time Value of Money?

The Time Value of Money means:

Money you have now is worth more than the same amount in the future.

Why? Because money today can be invested or used, potentially earning more money over time.

A Simple Example

Let’s say you invest ₹100 today at a 10% annual return.
In one year, it becomes ₹110.
So ₹100 today = ₹110 a year later.

Now flip it:
If someone promises you ₹110 next year, how much is that really worth today?
Answer: ₹100, that’s the present value.

Why Does Money Lose Value Over Time?

There are 3 key reasons:

1. Inflation: Your ₹100 today buys more than it will next year. Prices rise.

2. Opportunity Cost: You could invest that money instead of waiting.

3. Risk: Future payments carry uncertainty, because what if you never get it?

Key Terms You Should Know

The Formula (Don't Worry, It's Simple)

Future Value (FV) = PV × (1 + r)^t

Example:
₹100 at 10% interest for 2 years:
FV = 100 × (1.10)^2 = ₹121

So, your ₹100 turns into ₹121 in 2 years.

Why It Actually Matters (Yes, To You)

Loans and EMIs
Banks don’t lend for free, they calculate how much your EMI should be today based on what your future payments are worth. The time value of money is baked into every loan you’ve ever taken (or will take).

Investments
Wondering whether to lock money in a fixed deposit, buy stocks, or try mutual funds? TVM helps you compare returns over time, because ₹1 lakh in five years isn’t equal to ₹1 lakh today.

Retirement Planning
Want to sip coffee by the beach at 60? TVM tells you how much you need to invest now to make that dream a reality later. The earlier you start, the less it hurts.

Business Decisions
Companies use TVM to decide whether launching a product today is better than next year. It's how they weigh costs now versus profits later. It's not just finance, it's strategy.

Shift Your Mindset: Think in Time

Whenever someone offers you money later, pause and ask:
"What is this worth today?"

And before spending impulsively, consider:
"What could this become tomorrow if I invested it instead?"

TVM trains your brain to think forward, not just in rupees, but in value over time.

The Bottom Line

The time value of money isn’t some MBA buzzword.
It’s why you shouldn’t procrastinate on investments.
It’s how you avoid bad financial decisions.
It’s what helps you build real, long term wealth.

So the next time you think, “It’s just ₹500,” remember:

₹500 today could be ₹1,000 in the future.
Or worth far less if you do nothing.

Choose wisely. Time really is money.

Signing off, until next time!
Pavit Kaur : LinkedIn