How Does Time Value of Money - Present Value vs Future Value Work?

Time value of money means money now is worth more than the same amount later, like having a candy bar today instead of waiting for tomorrow.

Imagine you have $10 in your piggy bank. If you leave it there, next year it might grow to $12, thanks to a little friend called interest. That’s like getting extra candies because you were patient.

Present value is how much money you need today to have a certain amount in the future. It's like knowing you want 5 big cookies next week, so you save up 4 cookies now, because you know one will be eaten by your brother before then.

Future value is how much your money will grow to if you wait. If you put $10 in a cookie jar that gives you 2 extra cookies every year, next year you’ll have $12, that’s the future value of your $10.

So whether you're saving up for a toy or planning for later, knowing about present and future value helps you make smarter choices with your money.