Because money deposited or invested can earn more money over time, time can allow the value of money to increase. Time also has the effect of eroding the purchasing value of money through inflation. You can use certain financial calculations, described later, to estimate what effect time might have on your money.
Step One
Future Value - Albert Einstein once said, “The most powerful force in the universe is compound interest.” Not only can your dollar earn interest over time, but the interest itself can earn interest, known as compound interest. If you were to graph the results of compound interest on a chart, you would see a parabolic curve showing that even the rate of increase increases over time.
Step Two
Example - You can see an example of this effect in a comparison of two people’s retirement savings. One saves $2,000 per year for 10 years beginning when he’s 25 and quits after setting aside $20,000. The other saves $2,000 per year for 30 years beginning when she’s 35. At age 65 the man has $255,018, assuming 7 percent interest compounded each year, but the woman has nearly $38,000 less, in spite of having saved three times as much.