The fundamental premise of Time Value of Money is that money can earn more money over time when invested. Since money can earn more returns with time, the value of money is more the sooner it is received and invested. The basic equation for Time Value of Money is:-

FV = PV X [1 + R / N] ^{(N X T)}

Where, FV = Future Value, PV = Present Value, R = Annual Rate of Return, N = Number of compounding periods per annum, T = Investment Tenure

Example, if you have invested Rs 1 Lakh at 8% interest with quarterly compounding for 5 years the future value will be:-

FV = 100,000 X (1 + 2%) ²⁰ = Rs 148,595

Another factor in time value of money is inflation. Money loses value over time due to inflation. You should always factor in inflation when setting your goals. Importance of time value of money is extremely important in financial planning.