# Time Value of Money

This post is a explainatory post for Financial Functions of Excel. In order to understand some of the financial functions, you need to have a basic understanding about time value of money.

Time value of money is used to describe money’s value in different times. Since economical status tends to change over time (interest rates, etc.), money also tends to gain or lose value with it.

For example, 100.000$ had a different value 10 years ago then 100.000$ today. And it is likely that 100.000$ of today to have a different value than 100.000$ 10 years later. That’s because, you can use your money in investments or put it in a bank account with a certain interest rate and increase it’s quantity.

Financial Functions below are for calculations regarding time value of money.

**Important Points:**

**1. Cash Flow Direction:** For any transaction you calculate, you need to be aware of which direction cash is flowing to.

If you are calculating an amount of money you are going to recieve (like a loan), then cash will flow to you, which is a positive cash flow.

If you are calculating an amont of money that you are going to pay, then cash will flow from you, which is a negative cash flow (Negative cash flows are shown in red color and with a minus sign in front. i.e., -3000$).

**2.** **Maching Time Periods:** Periods you use in calculations should match in time units. For example, if you are calculating monthly payments for a 10 year loan, then you need to use time periods as months (10×12=120 period). Likewise you need to be careful with interest rates for their period type should match with other inputs.