The principle that a dollar today is worth more than a dollar in the future.
The time value of money is the fundamental principle that money has different value depending on when you receive it. A dollar today is worth more than a dollar in the future because today's dollar can be invested to earn returns. This principle explains why loans charge interest (the time cost of borrowing) and why investors discount future cash flows. For example, $100 today at 5% annual return becomes $161 in 10 years; conversely, $161 in 10 years is worth only $100 today at a 5% discount rate. Understanding time value explains financial math: why refinancing high-rate debt is valuable, why starting retirement investing early is crucial, why paying mortgages early can be valuable. NPV (net present value) analysis uses time value to evaluate investment decisions.