Glossary
Time Value of Money
The time value of money (TVM) is the principle that a dollar today is worth more than a dollar in the future, because today's dollar can be invested to earn returns. It's the foundation of all financial planning.
Why it matters
TVM explains why starting to invest at 22 with $200/month beats starting at 32 with $400/month. It's why lottery winners should take the lump sum (usually), why inflation matters, and why carrying high-interest debt is so costly. Every major financial decision involves a TVM trade-off between present and future value.
Example
$10,000 invested today at 7% annual return is worth $76,123 in 30 years. Waiting 10 years to invest the same $10,000 means it only grows to $38,697 — half the value for a third less time.
How Ray helps
Ray applies TVM thinking to your financial situation by projecting future account values and comparing options. Try to see how your decisions today compound into the future.
$ ray "what would an extra $200/month in savings be worth in 20 years?"Related terms
Compound Interest
Compound interest is interest earned on both your original principal and on previously accumulated interest.
Rule of 72
The Rule of 72 is a quick mental math shortcut: divide 72 by your annual rate of return to estimate how many years it takes for an investment to double in value..
Inflation
Inflation is the rate at which the general level of prices for goods and services rises, reducing what each dollar can buy.
APY (Annual Percentage Yield)
APY is the real rate of return on a savings or investment account, accounting for the effect of compounding interest.
Roth IRA
A Roth IRA is a retirement account funded with after-tax dollars, meaning withdrawals in retirement — including all investment growth — are completely tax-free.