When we think of modern data analysis, we tend to think of companies. But there’s a case to be made for more robust personal finance spreadsheets. That’s what we are discussing today: Two helpful Excel formulas that are often overlooked outside the office.
More specifically, I will explain the Future Value (FV) and Number of Periods (NPER) functions in Microsoft Excel. These powerful features streamline financial planning by calculating compound interest and determining loan payoff periods.
The FV Function Calculates Compound Interest
Using the FV function is perfect for calculating the compound interest on an investment. Let’s break it down with a practical example.
Suppose you invest $5,000 at an annual interest rate of 5%, compounded monthly over 10 years. Here’s how you’d set up the formula:
- Rate: 5% divided by 12 (months in a year), giving you the monthly rate.
- Number of Periods (nper): 12 months times 10 years, totaling 120 periods.
- Payment: If no additional investments are made beyond the initial, this value remains zero.
- Present Value: This is your initial investment, entered as a negative number, which in this case is -$5,000.
- When Payments Due: This is irrelevant since there’s no recurring payment.
In Google Sheets and Excel, you can type this directly or reference cell values for each component. Remember, the negative sign for present value is crucial for accurate calculation.
The NPER Function Determines Loan Payoff Time
So what about NPER? This function helps determine how long it will take to repay a loan. For instance, if you have a $10,000 loan with a monthly payment of $300, and an annual interest rate of 6%, here’s how to set up your calculation:
- Rate: 6% divided by 12 gives a monthly rate.
- Payment: Your outgoing monthly amount, which is $300. Enter this as a negative number, reflecting an outgoing payment.
- Present Value: The loan amount, which is $10,000.
- Future Value: Since the goal is to fully pay off, set this to zero.
- End-of-Month Payments: Payments are made at the end of the month.
Using these inputs, Excel predicts it will take approximately 36.5 months to pay off the loan. Useful, right? You can build this into a spreadsheet template that allows you to experiment with different payoff periods (and how much money you can save by paying off a loan early).
Note that this is built into our mortgage calculator spreadsheet template.
These functions, FV and NPER, can significantly simplify your financial calculations, saving time and energy on complex math. Whether you’re saving for the future or managing your debts, let Excel do the heavy lifting. And note that Google Sheets has the same functionality. If you do your family budgeting on the Cloud, both can help save time (and money).
For more Excel tips and tricks, visit SpreadsheetPoint.com.
