Do any of you remember how much you paid for a plate of masala puri 10 years back? Don’t worry, check the image above for reference if you haven’t ever enjoyed Masala Puri!

I do remember. I paid Rs 15 for my all time favourite evening snack. But, the most recent time I had it, I paid Rs 40 for the same.

So, has the price of masala puri more than doubled over the last 10 years? Yes it has, but not exactly. “What on earth are you trying to say FERDII?”

On the surface level, the price of it has doubled, but realistically speaking, the value of money has reduced. In other words, back in 2013, Rs 15 could fetch you a masala puri, but in 2023 the same costs Rs 40, with no much difference in quantity or quality.

So, let me introduce you to the concept of time value of money here. 

What is the Time Value of Money? 

Time Value of Money states that Re 1 today will always be greater than a Re 1 tomorrow. In other words, money will lose its value over time, so the money you have today is always greater in value than the money you will have in the future!

This is mainly due to 2 reasons:

1) Inflation. Not gonna elaborate much on this, because mostly everyone knows what it is.

2) Earning Capacity – Basically a Re 1 invested today will generate more returns than a Re 1 that is invested tomorrow. (Hey don’t come at me in the comments saying if you withdraw the latter one day later, the return will be the same)

Also Read: What is FIRE – Financial Independence, Retiring Early?

The point I’m trying to make is, the earning potential is higher for money today, than it is for money received in the future. The concept of time value of money is derived due to these two reasons.

So, if at all someone interviews you on the street and asks if you would rather take Rs 10 crore today or Rs 50 lakh yearly for the rest of your life, you say Rs 10 crore today and win that Rs 50!