In other words, it calculates what your investment will be worth in real terms – net of inflation and taxes.
This calculator assumes monthly compounding so if you want a different time interval try this compound interest calculator. If you want to adjust a single lump-sum without compounding try this inflation calculator. Other helpful and related calculators include present value calculator and present value of an annuity calculator.
One of these calculators is certain to be perfect for your needs!
And when you're done calculating then take the next step to maximize the future value of your assets with this free 5 video mini-course showing you the 5 Rookie Financial Planning Mistakes That Cost You Big-Time (and what to do instead!)
There are only four paths you can choose from.
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A dollar today and a dollar tomorrow are not equal. The purchasing power of that dollar will rise or fall over time resulting from inflation, investment return, and taxes.
Time value of money teaches the principle that money today has reduced purchasing power in the future due to inflation but increased purchasing power due to investment return.
The net impact of these two forces will determine if your future value rises or falls relative to the present value today.
The present value is simply the value of your money today. If you have $1,000 in the bank today then the present value is $1,000.
If you kept that same $1,000 in your wallet earning no interest, then the future value would decline at the rate of inflation, making $1,000 in the future worth less than $1,000 today.
Conversely, if you invested that $1,000 in a world where inflation didn't exist, then the future value would rise at the rate of interest net of taxes making $1,000 (+ interest – taxes) worth more in the future than $1,000 today.
Future Value = Present Value x (1 + Rate of Return)^Number of Years
While this formula may look complicated, this Future Worth Calculator makes the math easy for you by not only computing the variables present in this equation, but it also allows investors to account for recurring deposits, annual interest rates, and taxes.
However, please note when inputting data that applying historical inflation rates is acceptable but may prove inaccurate because the past is not the future.
Investors benefit in three ways by calculating the future value of money:
This information is essential for understanding whether or not you will reach your investment goals – not just in nominal terms, but in real (purchasing power) terms.
Based on your future value calculations you can then adjust your investment strategy by taking one or more of the following actions:
Other alternatives include investing for a longer time-frame by beginning earlier or ending later than originally planned.
The key point is when you know the facts and calculate your numbers then you can make informed investment decisions because a dollar today is not the same as dollar tomorrow.
This future value calculator will tell you which dollar you should prefer and how to manage your finances accordingly.
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