Sunday, November 10, 2013

Saving or Spending, these Calculators are Key

Whether you’re planning to save money for a particular financial goal such as a vacation, new car, a home, or retirement, or spending money to fund an investment, pay off student loan debt or reduce consumer debt, there are certain financial calculations that can come in handy.  You don’t necessarily have to be a mathematics wizard or financial analyst to harness the power of these financial tools though.

While I had the benefit of a financial education, with the Internet as a tool these days, even someone with a basic understanding of personal finances can make use of certain calculators, which whether saving or spending can end up resulting in huge financial ramifications.

Determining future values
If I invest $1,000 each year at a 3 percent annual return, how much will it be worth in 5 years?  10 years?  30 years?  What if I change that rate of return to only 2 percent?  Or maybe increase it to 5 percent?

Knowing how to put a lasso around these numbers and being able to harness them to my advantage is critical to understanding how my money can grow, or conversely how debt could grow as well.  Future value calculators can be incredibly important tools used to forecast a variety of investment situations such as returns on certificates of deposit, savings bonds, savings accounts, and money market funds, or determine how to best pay down or pay off debt.

Payment calculations (savings installments)
Ever wonder how much you would have to invest each month at a certain percent interest to save a million dollars?  Even if it’s not a realistic goal to shoot for, you may have considered it or at least something like it. 

Well, by taking that future value equation and swapping it around so that you’re starting with an end goal in mind -- say, a million dollars -- and attaching an associated timeline and interest rate, you can find out.  For example, let’s say you want to save $500,000 for retirement over the next 30 years and are sure that you can get a guaranteed rate of return of 3 percent compounded annually on your savings or investments.  A payment savings installment calculator would reveal that about $10,509 a year -- or around $875 a month -- would need to be saved. 

If nothing else, its kind of fun to play around with the numbers to see what is possible.

How to amortize a loan
But life isn’t always about saving money; and for many of us, more often than not it’s about spending money and taking on debt.  However, understanding how that debt is to be repaid can make a big difference in the amounts we put toward that debt and under what kinds of timeframes.

Figuring out what our payments will look like over time on things like a mortgage, student loans, or vehicle loan by way of an amortization schedule calculator can help us decide things like how much money to put down up front, how long of a loan to take on, and how much principal we’ll be paying on a loan compared to interest. 

With the use of such online calculators and calculations, financial issues that might seem rather befuddling can become clear quite easily and with the input of just a few numbers.  Taking advantage of these tools can end up saving thousand of dollars and clearing up some of the confusion that can accompany making certain financial decisions.


The author is not a licensed financial professional.  The information provided in this article is for informational purposes only and does not constitute advice of any kind.  Calculations have not been verified by a professional.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

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