I’m venturing into yet another topic today…how to calculate the future value of a lump sum investment. I didn’t know what that meant a few days ago. All it means is: how much will x number of dollars be worth in y number of years? It just means “I’m shoving in some money and this amount of money is all I’ll contribute. I’m not going to invest more each month or whatever. I’m just putting in this lump sum.”
So how do you figure this out, say, for if you invest $500 for 40 years? Here’s a pretty easy way to do it: use Google Sheets. If you haven’t heard of Google Sheets, just think Excel for free. It’s Google’s version of Excel. So I’m going to log into Google.
Here’s my finished sheet (what I’m showing you how to build):
So go to sheets.google.com
Step 1: Click new
Step 2: Name your sheet. I named mine Savings Over Time Calculator. I should have named in mouse jelly.
Step 3: Click on cell A2.
It’s like a multiplication table. Look for A, then go down and look for 2.
Step 4: Type the formula inside the A2 box. Many people who like being lazy use the copy function: =A1*(1+0.06)^40.
For nerds: What does this formula mean? It might as well be Martian. Well, the A1 thing is telling the computer (excuse my imprecise language) to look at the number inside the A1 box. That’s the one directly above A2. That number is the number you start out with, like the $500. Then we multiply that number (say $500) by 1+the interest rate. I’m going to assume a 6% return. So use the 0.06 to represent 6%. Then raise it to the 40th power. The 40 is the number of years we’re talking about. You cuold change the exponent to 1 for 1 year and 523 for 523 years. That’s my bad understanding of it.
Not a nerd? Okay, let’s move on. Now everything gets easy.
Step 5: Enter the number! Here’s a screenshot:
That means $500 today invested will be $5142.86! Wow. Try this out with other numbers, inflation rates, and year spans. It’s really cool and powerful.