People always say that gold does not lose its value but that money does. This is because unlike gold the value of money is very connected to time.

Briefly the Time Value of Money (TVM) means that 10 pounds today will not have the same value as 10 pounds a year from now, and this future value will usually be lower not higher.

The value of money here refers to its purchasing power (how much you can buy with it). For example you can buy a bag of chips and a can of coke for 10 EGP today but in a few years you may only be able to buy a pack of gum with the same amount!

How do you differentiate between genuine and counterfeit money? Check out our article 8 methods to detect counterfeit bills

## Present value of money (PV)

The time value of the money is what makes banking products such as time deposits and investment certificates useful because the bank pays you interest when you agree to deposit your money in it at its current value.

“The future value of the money includes the value of the money if it is invested and the profit that may be gained.

## The future value of the money (FV)

The future value of the money includes the value of the money if it is invested and the profit that may be gained through that investment.

For example if you invest 10 EGP and receive 12 EGP in return then the future value of your money is 12 EGP.

On the other hand, if you decide not to invest your 10 EGP and just put it in a piggy bank then its future value remains the same excluding its reduced purchasing power of course.

Also read inflation and printing money: what’s the relationship?

## The equation

In order to calculate the future value (FV) of your investments, you must calculate the compound interest value, and in order to be able to use the formula you need 3 things:

### Present Value (PV) of the money

Rate of return payout frequency - monthly, yearly, etc. (number of periods- n).

Rate of return (interest rate) per term as in the rate of return per month or year (rate of interest- r)

## Final equation:

Future Value = Present Value * (1 + interest rate) ^{number of periods}

FV= PV * (1+r)^{n}