Pratham Wealth 3 min read 6 days ago
Imagine I offer you ₹10,000 today OR ₹10,000 one year from now. Which do you pick?
Most people immediately choose today. But why? Is it just impatience? No, it is solid financial logic.
The Core Intuition
The Time Value of Money (TVM) is the concept that money available at the present time is worth more than the identical sum in the future due to its potential earning capacity.
### The Two Reasons Why Now Beats Later
1. **Opportunity Cost**: If you have ₹10,000 today, you can invest it. At a 6% bank interest rate, it grows to ₹10,600 in one year. By taking the money later, you are literally losing ₹600.
2. **Inflation**: Prices rarely stay the same. ₹10,000 today might buy a smartphone; next year, because of inflation, that same phone might cost ₹10,700. Your money loses purchasing power over time.
### Mapping the Future to Today
In finance, we use a process called **Discounting**. It helps us answer questions like: 'How much do I need to invest today to have ₹1 Crore in 20 years?'
Instead of looking at the big scary number in the future, TVM lets us focus on the manageable action we can take today.
The Delay Penalty
The longer you wait to start saving for a goal, the more expensive it gets. Delaying just 2 years could mean you have to save 20% more every month to reach the same target. Start now, even if it is a small amount.
Did you find this helpful?