What does "time value of money" emphasize in financial planning?

The concept of "time value of money" emphasizes that a sum of money has greater value now than it will in the future due to its potential earning capacity. This principle relies on the idea that money can earn interest or generate returns over time, which means that receiving funds sooner enables an individual to invest or utilize that money to generate additional income.

By receiving money now, it can be used for investments, savings, or expense payments, all of which can lead to a greater financial position compared to receiving the same amount at a later date. Essentially, the time value of money underscores the benefit of cash flow timing; having access to funds sooner can yield greater overall wealth due to the compounding effect of interest and investment growth.