Here is a calculator that you can use to compute how much you will have in an investment with a given annual percent return after a some number of years, given an initial investment and a periodic contribution.
For example, suppose you start with nothing, but invest $500 a month for 40 years (480 payments) at 10% interest rate. The initial principal is 0 and there are 12 payments per year. How much will you have after 40 years? More than $3.162039 million dollars of which you contributed only $240,000 of it!
If you stopped saving and began living off that interest and if it continued to pay 10% annualized per monthly (i.e. 10/12 = 5/6% per month), your monthly interest earnings would be $26360.33 or about $316.204K per year. Could you live on that? For only $250 monthly for 40 years, you would have more than $158K per year. Of course, this doesn't consider income or capital gains taxes, as the case may be. Perhaps a tax differed account is appropriate to achieve these goals.
The calculation performed below is computed from the formula below which is derived from this loan formula but the sign of the monthly payments reversed (because the monthly payments are adding to your balance, not decreasing it as in a loan) and the formula solved for the future principal value instead of setting that term to zero as in the end of term of a loan.
P | = | P_{i}(1+i)^{N} | + |
P -- i |
[(1+i)^{N}-1] |
Where the annualized percent interest rate is divided by 100 to get the decimal interest rate and further divided by the payments per year to get periodic interest rate i
Also computed is the total cost which is the monthly payment times the total number of payments plus the original principal used to open the account. The total interest paid over the life of the investment is the total principal at the end of the term minus the total cost you paid in.
Disclaimer: Before using these pages to make financial decisions, be warned that while these equations and calculators have been checked to varying degrees, the checks are not extensive. It is up to the user to verify formulas and their appropriateness to any particular purpose, and that the formulas have been implemented correctly in the calculators. Errors can also be introduced if the formulas are not used correctly. Additionally errors and malfunctions may be introduced in the calculators at the client side including the browser, which actaully runs the javascript code, the network, the OS or the hardware - all beyond the control of this website. In other words, there's no warrenty on anything. This includes the availability of this site at any particular time.
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