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Plan payments and savings by using financial formulas

PV arguments

Calculating with PV arguments: interest rate (6%/12), number of payments (18*12), payment (-100), and future value of savings (60000).

Suppose you still need to save $60,000 for a college education, but suppose also that you've received an inheritance, and some of that money could be moved to the college account. That would mean you could make lower monthly savings payments and still reach your goal. How much would you need to deposit at first, to keep the monthly payments at $100?

You could use the PV function to calculate what starting deposit will yield a future value of $60,000 in 18 years with savings of $100 a month at a 6 percent annual interest rate. You would type

=PV(6%/12,18*12,-100,60000)

The arguments may sound familiar by now. That familiarity shows you how many situations these concepts apply to.

interest rate of 6 percent annually is divided by 12, because your calculation is in monthly terms.

number of payments made monthly is 18*12, for 18 years.

payment is the amount you would pay each month, entered as -100. (The minus sign causes the function to calculate this value as a payment.)

future value is the target amount you want your savings to reach, entered as 60000.

You would need a starting deposit of ($7,240.85) to end up with $60,000 in 18 years by saving $100 monthly at a 6 percent annual interest rate.

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