Many of us in the FI community are numbers “nerds” who revel is using spreadsheets, software and programs to review and manipulate data. We love to plan on future value of our investments, timing for FI date, and the amount of savings we have to make in order to hit our goals. Its fun and informative for us.
There is also a host of financial programs and software available (look at the side bar for a few of the calculators). Still, sometimes its nice to know how to do some calculations for yourself, using simple formulas put into your spreadsheet software (like MS Excel). I thought I’d share of few of these with you, in case you would like to use them yourself.
- Calculating Future Value: What
would the future value of money be if you deposited a certain amount (say
$1000) for a specific period (say,
5 years) at a certain interest rate (say 10%). To do this, you would type
in the following formula into your spreadsheet software:
- =FV(rate, period, amount per period, amount you start with)
- Calculating Present Value: What amount
must you invest today, in order to have a certain amount (say $50,000)
within a certain time frame (10 years from now) at a certain interest rate
(say, 8%). To do this, you type the following formula into your
- =PV(rate, periods, payment, future value amount type)
Microsoft Excel has a host of these type of calculations (55 different ones). To find them, just open up a blank workbook, type in “FV” in the search function and look for “financial” under the search. By clicking on one of the 55 different ones, you are bound to find one which will meet your needs.
By using these, as opposed to just using some pre-set software, I feel you will have a better understanding of the core concepts behind the calculations, and be better able to map your path to Financial Independence.
Good luck on your journey!
Mr. 39 Months