An investment calculator tells you the potential value of your investments after a specific period. The calculator takes into consideration the variables typically involved in any investment and uses arithmetic calculations to arrive at an estimated value you can earn on your chosen investment. An investment calculator is an essential tool when it comes to financial planning as it helps you decide what the best investment plans for you could be.
How to use an investment calculator?
Here’s how you can use an investment calculator for your financial planning:
- Choose the frequency of investment
First, you need to determine how frequently you would like to invest. You can opt for monthly or yearly investments. Depending on your frequency of investments, your returns will change.
- Enter an investment amount
If you plan to invest a certain specific amount monthly, include that amount after selecting the frequency as monthly. Alternatively, if you want to make a yearly contribution, you can select the frequency as yearly and enter the necessary amount.
- Select the number of years you want to invest
Here, you need to select the period for which you want to make contributions toward your investments. The longer you invest, the greater the chances of minimizing the associated investment risks.
- Select the number of years you wish to stay invested
If you want to stay invested in your chosen investment plan but do not wish to make contributions, you can enter those number of years in this field.
- Provided the expected rate of return
You can provide an estimated rate of return for your investments based on the preferred investment’s past performances and reports. Evidently, the actual rate of return may be different from the expected rate of return. You can freely adjust the rate of return to match your expectations for your investments.
Once you enter the values and click on ‘calculate’, the calculator will display the estimated value of your investment after your chosen period of investment at your expected return rate. The calculator may also provide a graph to represent the growth of your investments with time.
Benefits of using an investment calculator
An investment calculator calculates approximate returns considering the power of compounding. The interest you earn on your principal investments is reinvested and you earn interest on the new investment amount. Here’s why you should use an investment calculator before making investments:
- Timesaving: An investment calculator saves time as it enables complex calculations within seconds. All you have to do is enter the values in the input fields and hit calculate.
- Accurate results: The calculator provides accurate results for any value of variables. You can increase or decrease the values and get accurate calculations each time. The calculator eliminates the possibility of errors that typically come with manual calculations.
- Effective investment planning: By adjusting the variables, you can determine the path for your investments, whether you want to save for higher education, clear off your debts, or opt for retirement plans, etc.
Bottom line
Investments can potentially help you grow your wealth. One of the tools you can use to efficiently plan for your wealth accretion goals is the investment calculator. It is freely available online and it helps you find the approximate value of your investments after a certain period of time, for a certain return rate.
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