Investment Variables
Time Value Results
The Time Value of Money (TVM) is a core financial principle stating that a sum of money is worth more today than the identical sum will be in the future. This is because money available right now can be invested to earn interest, creating compounding growth over time. A TVM calculator helps you project exactly how much your current assets and ongoing contributions will be worth down the road.
How the Time Value of Money Works
To calculate the Future Value (FV) of your money, financial models use the present value, the periodic payment amount, the interest rate, and the total time the money will be invested. Compounding interest accelerates this growth because you earn interest not only on your original principal but also on the accumulated interest from previous periods.
By understanding TVM, investors can make better decisions regarding loans, mortgages, leases, savings accounts, and massive capital budgeting projects. It allows you to compare the true value of cash flows that occur at different times.
How to Use This Tool
- Enter your Present Value. This is the initial lump sum of money you are starting with right now.
- Enter your Monthly Payment. If you plan to add money to the investment every month, place that figure here. If you are not adding any extra money, leave it at zero.
- Input the Annual Interest Rate you expect to earn on the investment.
- Specify the Time Period in years that you plan to let the money grow.
- The calculator will instantly display your Future Value, showing the total worth of your investment at the end of the term.
Frequently Asked Questions
What is Present Value (PV)?
Present Value represents the current worth of a future sum of money or stream of cash flows given a specific rate of return. In the context of savings, it is the initial amount of cash you have available to invest today.
What is Future Value (FV)?
Future Value is the value of a current asset at a specified date in the future based on an assumed rate of growth. It tells you exactly how much your current savings and future deposits will grow to become.
How does inflation affect the Time Value of Money?
Inflation actively works against the Time Value of Money by reducing purchasing power. If your money is sitting under a mattress earning zero interest, it is losing value every day because goods and services become more expensive over time. Investing money at a rate higher than inflation is the primary way to protect and grow its true value.