[...]...x Introduction The financial tools in this book are arranged into four parts: 1 2 3 4 Assessing your current wealth Managing your debt Managing your investments Planning for your future Using the financial calculators in each section, you will be able to: • Determine how much money you have, how much you owe, and how to better control your finances • Use the time value of money calculations to make... L ATO R determining the trade-off between savings and spending Determining the rate of interest that you can earn on different investments makes it easier to compare your alternatives to save or to spend The financial calculators that follow will help you determine the future values of these investments using the time value of money F I N A N C I A L C A LC U L ATO R # 5 Simple Interest and How to Calculate. .. reduce the outstanding balance of the loan The current outstanding balance of the loan may be obtained directly from the lender or from mortgage statements from the lender You can also determine the balance yourself See the financial calculator in section 20, which explains how to determine your mortgage balance Add up all the amounts owed to others and you have the total of your liabilities Net Worth Your. .. alternative to come to a decision as to whether to take a lump sum now or receive a series of payments into the future The impact of the time value of money is dependent on the following three factors: 1 The amount of money 2 The annual rate of interest 3 The length of time Assessing Your Current Wealth 21 No doubt you are familiar with these factors from your school days when you used them to determine the. .. T he most basic method of calculating interest is the simple interest method The other, more common method of calculating interest is the compound interest method (described in section 6) Interest is the cost charged or payment made for the use of money The simple interest method calculates interest on the principal only without any compounding In other words, the interest earned is not used to earn... investments • Determine your needs in retirement The financial tools presented in this book allow you to work through these and other personal financial problems that you are likely to encounter in managing your personal finances Most personal finance decisions involve choices, and making the right choice most of the time involves more than intuition and guesswork By working through the different calculations,... of your income statement and balance sheet for the past month, months, or year and a reflection of your financial goals It expresses what you would like to achieve in terms of spending and savings in the future A budget can assist you in determining whether: • You are living within your income limits • Your current spending patterns are satisfactory • You are saving and investing sufficient amounts to. .. would need to save $3,115.82 per month to fund all four goals (column 5) See the time value of money calculator (section 4) to determine how to calculate these amounts Realistically, however, Mr and Mrs X would have to save more than the amount in column 5 to fund all their goals because of two factors: income taxes and in ation Mr and Mrs X will have to pay taxes on their interest income and in ation... is to provide you with flexibility in your financial planning so you can achieve your financial goals Step 3: Determine Your Financial Goals In order to set aside money for your financial future, you need to estimate the expenditures that go toward your savings and investments Financial goals vary from person to person over time Some financial goals are: • • • • • • • • • Saving for an emergency fund Increasing... (for example, a rise in the value of stocks, bonds, mutual funds, and real estate) • Reducing liabilities This also reduces the amount of interest payments made to service the debt • Increasing your income, such as through salary and wage increases and increases in investment income • Reducing the amount spent on living expenses The importance of increasing net worth is obvious, but the addition of assets . Future FINANCIAL CALCULATOR: #51 How to Determine Your Future Financial Needs and How to Fund Them 265 #52 How to Determine How Long Your Money Will Last in Retirement and the Amount of the Payment. and How to Calculate It 33 #9 Annuities and How to Calculate Them 37 #10 How to Determine the Amounts Needed to Fund Your Objectives 52 #11 How to Reconcile Your Checking Account 61 #12 How to. Use. PART TWO Managing Your Personal Wealth—Debt FINANCIAL CALCULATOR: #13 Determine Your Debt Capacity 75 #14 How to Determine the Best Source of Credit 77 #15 How to Determine the Annual Percentage