Time Value of Money and a Financial Calculator- A Powerful Duo

When is the last time you have heard the term TVM, if ever? This stands for Time Value of Money, and is a very powerful concept that may help assist you in making important financial decisions in life. What are some examples of this concept you may be asking? Here are a few that are able to be calculated using a financial calculator:

Compounding- determine the future value of a present amount, Discounting- finding the value of a future sum in today's dollars, Present&Future Value of a DollarOrdinary Annuity and Annuity Due, Future Value of an Ordinary Annuity and Annuity Due, Present Value of an Ordinary Annuity and Annuity Due, Payments Made or Recieved Other Than Annually, Present & Future Value of and Increasing (Inflation-Adjusted) Annuity, Combined Future Value of a Lump Sum and Annuity Payments.

This list may seem cumbersome, but let me give you a few everyday situations that may be more easily understood. You want to save for a downpayment on a house in 5 years. You put in $10,000 into a CD. Based on current rates, will this amount meet your goal for a downpayment for your house?

A second example would be someone making multiple payments toward that house downpayment throughout the year. With a financial calculator, you can take that into account and still determine if the amount compounded over your savings term will meet your goal. This is called Future Value of an Annuity.

A final example is a true Inflation-Adjusted Rate of Return. This is the return you expect from an investment after subtracting the current inflation rate but it's not that simple. Using that approach may give you a close approximation, but to be accurate, the use of a financial calculator would be involved.

A financial calculator does much more in addition to basic math functions. For $25-40 dollars, this type of calculator can be used as a tool to assist you in making better financial decisions throughout life and one can be found in just about every desk of a financial planner. I have one and it has helped me both plan for and achieve my financial goals.