Money Today or Tomorrow? Why Timing Matters for Your Investments

TL;DR Should I take the money now or wait for a larger amount in the future? This is a fundamental question in finance. The time value of money (TVM) explains that the same amount is worth more today than in a month or a year because you can invest it right away and earn a profit.

The Real Dilemma: Staking or Waiting?

Imagine this situation: you have 1000 dollars and you can get it from a friend today or wait a year to receive the same amount. Sounds insignificant? It’s not. During those 12 months, you could place the money in a high-interest account, invest in stocks, gold, or even cryptocurrencies. Importantly - money loses value over time due to inflation. This is how the value of money over time works.

This is not just an academic theory. Every cryptocurrency investor faces a similar choice: whether to take a return now or lock funds in staking and wait for a larger profit?

Opportunity Cost: What You Lose by Waiting

By choosing to postpone receiving funds, you lose the opportunity to use them for something valuable. This is what is referred to as opportunity cost.

Practical example: Your friend offers to return 1000 dollars today OR 1000 dollars in 12 months, because he is going on a trip. TVM says clearly - take it today. In the meantime, you can:

• Deposit money in a savings account with a 2% annual interest rate
• Invest wisely and achieve significantly greater profit
• Protect yourself from inflation

In 12 months, your 1000 dollars will actually be worth less due to the rise in the prices of goods and services.

How to Calculate the Future Value of Your Money

The future value (FV) shows how much today’s invested amount will be worth in the future. The formula is simple:

FV = Investment × (1 + rate of return)^number of years

If you invest 1000 dollars at a 2% annual return:

• After a year: 1000 × 1.02 = 1020 dollars
• After two years: 1000 × 1.02² = 1040.40 dollars

When interest is compounded more frequently, for example quarterly, the amount grows faster:

• Quarterly contribution: 1000 × (1 + 0.02/4)^4 = 1020.15 dollars

A difference of a few cents may seem small, but it becomes significant with larger amounts and over longer periods.

Current Value: How Much Is Tomorrow Worth?

The current value (PV) is a reverse calculation - how much is the money you will receive in the future worth today?

If a friend says he will give you 1030 dollars in a year instead of 1000 dollars today, is it a good offer? You check the current value:

PV = Future amount ÷ (1 + rate of return)^number of years

PV = 1030 ÷ 1.02 = 1009.80 dollars

The current value is $1009.80, which is more than the $1000 you are getting now. Waiting makes sense - the profit will be almost $10.

Compound Interest: The Small Snowball Effect

Compounding (compound interest) is where reality changes. Instead of earning interest just once, you earn interest on interest. The effect snowballs - like a snowball in the mountains.

The amount that starts small can become significantly larger over time. This difference grows exponentially, especially with higher rates of return and longer periods.

Inflation: Your Opponent in the Background

Here the matter gets complicated. What does it matter if you earn 2% per year if inflation is 3%? In reality, you are losing 1% of the value of money.

Inflation is difficult to predict and different indices provide different numbers. But you need to take it into account when planning your finances. When negotiating a raise, it's worth including the inflationary increase in the cost of living.

The Value of Money Over Time in Cryptocurrencies

In the world of crypto, the concept of the value of money over time takes on a concrete meaning.

Staking ETH and Bitcoin: You have one Ethereum (ETH) now and you can:

• Keep it in the wallet
• Lock in staking for 6 months with a 2% return
• Looking for alternative staking with better profitability

Simple TVM calculations will help you choose the most profitable option.

Bitcoin (BTC): Although BTC is referred to as a deflationary currency, its supply is slowly increasing up to a certain point. This means a current inflationary supply. Should I buy BTC for 50 dollars now or wait for the next paycheck? TVM suggests the first option, but the fluctuating price of BTC complicates the situation.

Summary: The Time Value of Money in Practice

Although we define the TVM formally, you are already intuitively using this concept. Interest rates, profits, and inflation are present in everyday economic life.

For large companies, lenders, and investors, even a fraction of a percent makes a huge difference. For cryptocurrency investors, the time value of money is crucial when choosing an investment strategy - whether it's staking, hodling, or trading.

Remember: the money in your pocket today is always worth more than the same amount in the future. Therefore, invest wisely and consider every earning opportunity.