What is the importance of time value of money concept in personal finance planning?

Its very simple though it is not taken into account in personal finance planning. Now suppose you are planning to purchase a car after 5 years and you have checked the cost of car to be 10lakhs and decided to save 2lakhs every year for that plan. Now after 5 years you have surely accumulated 10 lakh ruppes but the same car's cost would have definetly imcreased. Therefore it is important to keep in mind that Money has a TIME VALUE, the purchasing power decreases with increase in time , thereby the value of money(puchasing power) decreases because of passing of time. So ideally if you planned to purchase a car after 5 years worth 10 lakh rupees you will have to save more then 2lakhs wvery year keeping in account inflation and other factors or you have to invest 2 lakh every year in such a way that the returns beats the time value of money and ajdust the inflation in terms of returns. Therefore for planning personal finance , time value of money is one of the most important facror to keep into account. read less

TVM is the core of all saving and investment decisions. While the decisioning requires some comparative calculations, the actual concept is simple. Money loses it's value with time OR things become expensive with time. Understanding this concept enables you to make proper plans for financial goals. read less