Personal Finances

Key Takeaways

• The principle of compound interest refers to the effect of earning interest on your interest.
• The principle of the time value of money is the principle whereby a dollar received in the present is worth more than a dollar received in the future.
• The principle of the time value of money also states that a dollar received today starts earning interest sooner than one received tomorrow.
• Together, these two principles give a significant financial advantage to individuals who begin saving early during the financial-planning life cycle.