Time Value of Money Explanation
Hola bellas! Have you ever heard that a dollar today is worth more than a dollar tomorrow? Well, it’s true! It’s a concept called the Time Value of Money (TVM). The money you have today is worth more than the same amount tomorrow, because of the potential to grow in value over a period of time. If you have the money today, you can invest it or put it in a high-yield savings account so that it can grow in value.
For example, if you have $5,000 and you put that money in a high-yield savings account, it will be worth more than if you received $5,000 in a year. If the high-yield savings account is offering a 2% interest rate, your $5,000 would be worth $5,100 in a year (your money grew in value). If you’re interested in putting some of your money in a high-yield savings account, here are some of the best high-yield savings accounts:
Also, if you invest that money in mutual funds, stocks, or any other investment, it’s possible that you can earn over a 5% return on your investment. If you invest $5,000 and earn a 5% return in one year, your money would be worth $5,250 in a year.
So, if you’re ever given the option to have money now or later, remember the time value of money and that money now is worth more than money later because you can invest the money now and earn more money from investing it. Here is a handy calculator you can use to calculate the money you will earn from placing it in a high-yield savings account or when you earn money from investing it.