Most of us would like to save money for our child – for her college studies, for marriage or for travel. We keep on procrastinating, generally. The future value or FV function in Microsoft Excel will help you to understand why it is important to start saving as soon as possible. People who have saved money at the right age have reaped the benefits of their little sacrifice. Now there are many options to save money. You can deposit a certain sum every month, quarter or yearly in post office accounts, public provident fund or term deposits with banks. Of course, depending on your risk appetite, you can do a systematic investment planning (SIP) in mutual funds where you deposit small amounts every month and generally over a period of time your savings take care of the the fluctuation in the stock prices. Also, if you have a good mutual find advisor you can make more money. Making more money always involves more risk! If you wish to play safe then go for the above regular deposits.
After calculating the future value we can also do a ‘what-if’ analysis using goal seek and see how much we wish to have in the future and what kind of deposits we need to make regularly.
You can also use pmt with future value to calculate your monthly payments to a bank on a loan taken. For example, you may decide to take a loan for a small business you wish to start. Based on your business plan you would like to start making the monthly repayments after 6 months or a year. With the FV function you would first calculate the amount on which you would have to make the monthly repayments.
Short Description of the FV function
Returns the future value of an investment based on periodic, constant payments and a constant interest rate.
Rate is the interest rate per period. So if your interest rate is per annum and you are depositing amounts per month the interest rate is ‘Rate/12’.
Nper is the total number of payment periods in an annuity. So if you deposit a certain amount every month for 10 years, the Nper is ’10×12=120′.
Pmt is the payment made each period; it cannot change over the life of the annuity.
Pv is the present value, or the amount that is already in your deposit account. If pv is omitted, it is assumed to be 0 (zero)
Type is a value representing the timing of the payment: payment athe beginning of the period=1; payment at the end of the period =0. Payments at the beginning of the period will fetch you a greater interest than at the end. If type is omitted, it is assumed to be 0.
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