A dollar today is worth more than a dollar tomorrow because of its earning potential. Underpins compound interest, present value, future value, and discounting.
Time Value of Money is the principle that a dollar today is worth more than a dollar tomorrow, because today's dollar can be invested and earn returns.
TVM underpins compound interest, present value, future value, discounted cash flow analysis, and almost every financial calculation involving time. If you understand TVM, you understand 80% of personal-finance math.
Future value answers: 'What will this amount of money grow to in N years at rate R?'
Formula: FV = PV × (1 + r)^n
Example: S$10,000 today at 7% for 30 years → S$10,000 × 1.07^30 = S$76,123.
Add periodic contributions and the formula extends with an annuity term. The Compound Interest Calculator on this site does both forwards and backwards (solving for any of FV, PV, PMT, N, or rate).
Present value answers: 'How much would I need to invest today to have S$X in N years?'
Formula: PV = FV / (1 + r)^n
Example: to have S$1 million in 30 years at 7%, you'd need S$131,367 today.
PV is how you compare future cash flows. A retirement payout of S$500/month for 30 years starting at age 65 has a different PV depending on the discount rate you choose — typically your expected long-run investment return.
Inflation is the inverse of TVM: a S$100 expense today will require more dollars in 20 years to maintain purchasing power. At 3% inflation, S$100 today is S$181 in 20 years.
Real vs nominal: nominal returns ignore inflation; real returns subtract it. Compare retirement plans in real terms to avoid being fooled by inflated headlines.
Opportunity cost: every S$1,000 spent today is worth ~S$7,600 in 30 years at 7% returns. This is why small recurring expenses (subscriptions, daily coffee) become enormous over a lifetime.
Discount rates matter: when comparing a lump sum vs annuity payout (CPF LIFE, pension, lottery), use a realistic discount rate — usually 4% – 7% real for personal planning.
The principle that a dollar today is worth more than a dollar tomorrow, because today's dollar can be invested and earn returns. TVM underpins compound interest, present value, future value, NPV, and almost every long-horizon financial calculation.
Present Value (PV) is what a future amount is worth today, discounted by an interest rate. Future Value (FV) is what a present amount will grow to in the future at an assumed rate. S$10,000 today at 7% becomes S$76,000 in 30 years (FV). S$76,000 in 30 years is worth S$10,000 today (PV).
It shows the true long-run cost of spending money today (opportunity cost) and the power of starting to save early. S$1,000 spent today is foregoing ~S$7,600 of compounded value at age 65 if you started saving at 25 with a 7% real return.
Use a TVM calculator (the Compound Interest Calculator on this site is a 5-variable solver — give it any four of PV, PMT, FV, N, I/Y and it returns the fifth). Or use a spreadsheet's =FV(), =PV(), =PMT(), =NPER(), =RATE() functions.