What Is Time Value of Money? Real-Life Examples That Make It Click Would you rather get ₹1,000 today or a year from now?
If your gut says “today,” you’re already halfway to understanding the Time Value of Money (TVM). Why? Because money you get today can grow, earn interest, or be invested whereas future money just sits there doing nothing until it finally arrives.
Don’t worry, no complicated math ahead—just real-life situations that’ll make the idea of TVM stick in your head (and wallet).
Section 1: The Core Concept, Simply Explained
Time Value of Money (TVM) means a rupee today is worth more than a rupee tomorrow.
Why? Three big reasons:
Inflation – Prices rise, so your money buys less in the future.
Opportunity Cost – Money today can be used or invested.
Earning Potential – Money can grow over time through interest or returns.
Think of it like this: Money has the power to grow over time—so the earlier you get it, the more powerful it is.
Section 2: Example 1 – The Starbucks Coffee Test
Say your favorite coffee costs ₹300 today. Now, imagine you don’t buy it and instead invest that ₹300 at 10% annual return.
In 10 years? That coffee money grows to around ₹778.
Yep, skipping one cup today could buy two and a half in the future.
Now imagine this with bigger things—like gadgets, cars, or even your salary. That’s the Time Value of Money in action.
Section 3: Example 2 – Choosing Between Two Job Offers
Offer A: ₹5,00,000 right now.
Offer B: ₹6,00,000 after two years.
At first glance, Offer B looks better. But is it really?
Let’s apply TVM logic. If you take ₹5,00,000 today and invest it at 8% annually, you’ll have nearly ₹5,83,000 in two years.
Suddenly, Offer A doesn’t look so bad.
Delaying income often reduces its actual value—unless it grows enough to compensate for time lost.
Section 4: Example 3 – Buying vs. Leasing a Car
Suppose you’re buying a car:
Buy Option: Pay ₹10 lakhs upfront.
Lease Option: Pay ₹3 lakhs/year for 4 years.
TVM helps here: ₹3 lakhs over time is not the same as ₹10 lakhs today. To compare, you’d discount those lease payments back to present value. Sometimes, leasing feels cheaper but costs more when adjusted for time. Other times, it saves money—TVM helps you figure that out.
Section 5: Where You See TVM in Real Life
Once you spot it, TVM is everywhere:
Student Loans: The sooner you pay them off, the less interest snowballs over time.
Retirement Planning: SIPs and compounding work best when you start early.
Mutual Funds: Long-term investing makes your money work overtime.
EMIs: Buying on EMI? You’re paying more in future value than if you paid upfront.
Lottery Winnings: Lump sum vs. annual payouts? TVM tells you which is smarter.
Section 6: The Formula (Optional, Light)
Here’s the classic formula:
FV = PV × (1 + r)ⁿ
Where:
FV = Future Value
PV = Present Value
r = Interest rate per period
n = Number of periods
Not into formulas? No worries. There are tons of free TVM calculators out there to do the math for you.
Conclusion
Once you truly get Time Value of Money, you’ll never see ₹1,000 the same way again. Whether it’s a small daily coffee or a big career decision, TVM helps you think smarter.