In my last post, I outlined the basic concept of time value of money. Now it is time to roll your sleeves up and solve some problems. Calculating future value with a financial calculator or in a spreadsheet can be tricky. I hope this helps:

## Calculating FV (Future Value)

If you remember from my time value of money post, future value is a number at a certain time in the future. Unlike the previous post, we will solve for the future value.

## How much money will you have in 20 years?

This is the million dollar question in financial planning.

You can invest $500 per month and have 20 years until you plan to retire. If you earn a 10% annual return, how much money will you have to retire on in 20 years?

#### Let’s solve it together:

N (Number of Periods) is 20 years but this problem has monthly payments. So N is 240.

I/Y (Interest per Year) is 10% but we are using monthly payments so we need to divide by 12. So I/Y is 0.833%.

PMT (Payment) is $500 but we are putting money into an investment. So PMT (Payment) is -$500.

PV (Present Value) is not used in this problem.

#### Calculating Future Value with a financial calculator:

Here’s the summary of inputs for a financial calculator:

N: 240

I/Y: 0.833

PV: $0

PMT: -$500

After these inputs are in, hit CPT in the top left corner and then hit FV. Your answer is $379,684.42. You will have $379,684.42 in 20 years.

#### Computer Spreadsheet Solution:

Here is the formula to solve the problem in a spreadsheet program such as Apache OpenOffice:

=FV(.10/12,12*20,-500)

You come up with the same answer. $379,684.42. Ouch. I sure hope you don’t have many bills in your retirement. $379,684.42 will get you a nice room in your daughter’s basement. I would say son but we both know that’s not happening.

## What happens if you save for 10 more years?

The beauty of time. Changing N (Number of Periods) to 30 years makes a big difference. Let’s take a look:

#### Calculating Future Value with a financial calculator:

Here’s the summary of inputs for a financial calculator:

N: 360

I/Y: 0.833

PV: $0

PMT: -$500

After these inputs are in, hit CPT in the top left corner and then hit FV. Your answer is $1,130,243.95. You will have $1,130,243.95 in 30 years.

#### Computer Spreadsheet Solution:

Here is the formula to solve the problem in a spreadsheet such as Apache OpenOffice:

=FV(.10/12, 12*30, -500)

Much better. How does it feel to be a millionaire? Saving an extra 10 years makes a huge difference. You only invested an extra $60,000 in 10 years but you accumulated an extra $750,559.53 in wealth. Nice!

### Are you having any trouble calculating future value?

In my next post, we’ll solve for PV (Present Value).

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