This future value calculator figures the after-tax and after-inflation value of...show more instructions
What Will Your Investment Really Be Worth In The Future?
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.
Present Value Vs. Future Value
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 Calculation
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.
Knowing Future Value Helps Investors
Investors benefit in three ways by calculating the future value of money:
- You can accurately determine how much taxes will cost you.
- You can accurately calculate how much inflation will reduce purchasing power.
- You can accurately calculate how much investment return will grow your capital.
- The net result provided by this future value calculator will then determine if you are better off accepting a dollar today or a dollar (plus interest minus inflation and taxes) tomorrow so you can make a smart investment decision.
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:
- Raise the amount of your deposits.
- Increase the frequency of your deposits.
- Invest where you will earn more interest.
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.
Related: 5 Rookie Financial Planning Mistakes That Cost You Big-Time (and what to do instead!) Explained in 5 Free Video Lessons
This future value calculator will tell you which dollar you should prefer and how to manage your finances accordingly.
Future Value Calculator Terms & Definitions
- Beginning Savings Balance – The money you already have saved in the investment.
- Enter the ______ deposit amount – The amount and frequency of deposits added to the investment.
- Annual Interest Rate (% ROI) – The annual percentage interest rate your money earns if deposited.
- Number of Years – The number of years the investment will be held.
- Tax Rate (Combine State and Fed %) – The combined state and federal tax rates to account for future value after taxes.
- Rate of Inflation (%) – The average annual rate of inflation expected every year during the number of years the investment will be held.
- Nominal Future Value – The future value of an investment not accounting the taxes and inflation.
- After-Tax Future Value – The future value of an investment after deducting taxes.
- Future Value After Taxes And Inflation – The future value of an investment after deducting taxes and inflation.
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