Money now is worth more than money later due to growth potential and the erosive effects of inflation. This is one of the most important concepts in personal finance. This concept is what makes 0% financing so attractive. Assuming no payments are missed and the loan is paid in full during the 0% period, inflation essentially pays a portion of your bill. Not a bad deal. Remember that if payments are missed or other conditions go unsatisfied, the interest rate often balloons to a ridiculously high interest rate. Be smart with your money; don’t be lured into “deals” with circumstances you’re not sure you can satisfy. If you miss a step, any step along the way, you’ll pay dearly. Nothing is free, everything is conditional.
Inflation eats away at buying power: $100 is worth more now than $100 a year from now. Inflation (averaging 3% per year) eats away at the buying power of money. Assuming a 3% inflation rate, $100 today will only purchase $97.09 (100/1.03) worth of goods a year from now.
Retaining buying power: You can retain buying power by making your money work for you. You may deposit into savings, money market or other accounts to gain interest. Leaving excess funds (i.e. more than you need for bills and a respectable cushion) in checking accounts is typically a bad idea because checking accounts generally have some of the lowest rates. You may also invest your funds in stocks or mutual funds, accepting a higher risk to potentially earn higher returns. These strategies will allow you to somewhat counter or even beat losses of buying power to inflation.
