Time value of money

Three reasons may be attributed to the individual's time preference for money - risk, interest earning potential and preference for consumption.

The core idea behind ‘time value of money’ is that, a rupee ‘today’ can earn and grow with time. That is why a rupee today, is worth more than a rupee in the future. This is based on potential earning capacities. 

Let us take an example:  You are given an option of receiving 1 lakh now or 1 lakh after 5 years. Which option you would choose. Obviously you would select 1st option because money loses its value over a period of time. 

This is due to following reasons –

Inflation- It is a key factor which reduces the purchasing