The Time Value of Money
The time value of money is a basic financial concept based on the assumption that a dollar received today is worth more than a dollar received at some future date because a dollar received today can be invested and earn interest. If someone agreed to pay you $1,000 ten years from now, or some lesser amount today, you could calculate the amount you'd need to receive today to equal the value of $1,000 in ten years. You do this by discounting the amount using current interest rates. If the current interest rate is 6 percent, you might be willing to accept $558 today rather than waiting ten years for your $1,000 because you're confident that if you invest the $558 at 6 percent it will grow to $1,000 in ten years.
There's more to the concept of the time value of money, but the most important thing for you to remember is that receiving $1 today is better than receiving $1 tomorrow, and the entire amount in a lump sum is better than installment payments (assuming there's no interest involved). If you're paid in installments, you lose the opportunity to invest the lump sum for a longer period of time.
Opportunity costs are the benefits you lose by not choosing the best alternative for the use of your money. If you pay $100 in credit card interest each month, you've lost not just $100, but also the added value you could have received if you had invested that $100.
