Managing money can involve calculations to understand the worth of an investment. To arrive at a result, calculations can be done in a different way or by using a different formula.
Even the same formula can be used differently to arrive at a certain result. Here are a few commonly used money management formulas. Use an excel sheet to do these.
1. Compound Interest
I want to take a loan of Rs 1 lakh to buy a used car. How much will the car cost me at an annual interest rate of 8 per cent for four years?
The compound interest formula can be used here to calculate the final cost, which would include the loan amount and the interest paid. The amount that is actually paid for Rs 1 lakh is Rs 1,36,048.90. The total amount of interest charged for borrowing Rs 1 lakh is Rs 36,048.90.
Formula: Future value = P(1 + R)^N
Type in: =100000(1+8%)^4 and hit enter. P: amount borrowed; R: rate of interest; N: time in years.
Also used for: Calculating the maturity value on lumpsum investment (bank fixed deposits and National Savings Certificate, for example) over a fixed period at a certain rate of interest.
Text: Sunil Dhawan, Outlook Money
Image: Indian prospective car buyers pause as they inspect cars at an used car market in Bangalore. | Photograph: Indranil Mukherjee/AFP/Getty Images
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