Financial Literacy – Why it Matters
“The ability to understand how money works and how to manage it, is vital to everyone in order to be successful in life. Being equipped with the knowledge to navigate saving, investing, student loans, debt, taxes, retirement, etc, should be mandatory education starting at a young age, not an elective afterthought.” – Programmed to Spend
The High Cost of Financial Illiteracy
Without the knowledge necessary to make wise financial decisions, people often end up in serious debt trouble that can take a significant toll on their well-being. They may not understand the pitfalls of buying on credit, when you should and shouldn’t borrow money, or how high interest and fees can erode their wealth. If you don’t know the importance of credit scores, emergency funds, or how to make every dollar count, it is critical that you educate yourself. Without goals, plans, and budgets, there will be no saving or investing for the future. There is a direct correlation between financial literacy and the amount of wealth one is able to accumulate before retirement – it doubles.
Being educated financially equips you with what you need to establish goals and to understand how to prioritize your spending. Without a plan, budget, and record keeping, most people remain blissfully unaware of where their money is going. It isn’t necessary to deprive yourself, you simply need to weigh the importance of what you spend money on. The average American spends almost 20% of their income on items that are wants and not needs, so there are choices to be made. Is it more important to you that you spend $300+ a month on coffee, eating out, partying, shopping, gym memberships, etc, or save/invest that money so you have the funds for your children’s education, to start a business, buy a house, fund your retirement, or to be prepared for an emergency. $300 a month invested for 30 years at 5% interest is $250,000, but $300 a month spent on coffee, partying, or eating out is just gone…
DNotesEDU Financial Calculator is a multi-function 5-in-1 savings/investment calculator that allows you to solve for any one of the five variables. Any four of the following five values must be entered to solve for the fifth. The factor you are solving for will turn green after entering the other four values. It will stay green (solve mode), allowing you to see the results with various other value inputs. You do not have to refresh or start over in order to move from solving one function to another. Simply enter a value in the text box that was green, clear the one you wish to solve for, and press ‘Calculate’ again.
Initial Amount: Enter the present value or any lump-sum deposit you make before the monthly payments commence. Enter 0 (zero) if there is no balance, or leave blank if you wish to find how much you need right now in order to reach your goal.
Monthly Deposit: Enter the amount you are going to contribute every month, or 0 (zero) if you are not making monthly savings deposits. Leave blank if you wish to find the monthly savings required to reach a certain goal.
Interest: Enter the annual interest rate that you expect to earn (interest earned is compounded monthly), or leave blank if you wish to find the rate required to meet your goal. For reference, 10 and 20 year returns on various investments are provided on the right of this page. These should not be taken as a guarantee of future rates, especially with record low interest rates on fixed income investments.
Number of Years: Enter the number of years you have to save for your goal, or leave blank if you wish to find out how long it would take to accumulate the needed funds.
Future Value: Enter the $ amount of your goal, or leave blank if you want to calculate the future value of the other four value inputs.
Example: Suppose your goal is to reach a level of financial independence in 30 years that allows you the freedom to travel, have a small ‘hobby’ business that isn’t required to support you, and move to warmer location.
- You have $10,000 saved and want to know how much you will accumulate if you save $250 a month for the next 30 years.
- You estimate that a balanced, somewhat conservative investment approach over that time period should earn a minimum 5% return.
- Enter: Initial Amount = 10,000, Monthly Deposit = 250, Interest = 5, and Number of Years = 30.
- After pressing calculate to solve, and finding out that the future value will be $253,609, you realize something needs to change in order to save sufficient funds for this goal.
- Recalculating using a monthly deposit amount of $500 (simply change text box from 250 to 500 and press calculate), adjusts the future value to $462,000.
- Changing the interest rate % to 6, which is still realistic, ups the final balance to $564,995.
- Keeping the same screen (all values the same including the 6% interest and $500 monthly changes), you decide you would like to know what you need to do differently to accumulate $1,000,000.
- All that needs to be done is to change the Future Value box from empty to 1,000,000, and remove any one of the other 4 values.
- For instance, if you clear the Initial Amount, the screen will turn green for solve mode, and when you calculate, you will discover that you need to start with $82,229 to reach your $1M goal.
- Return the Initial Amount to 10,000, clear the monthly deposit box, and press calculate to find out what your monthly savings would have to increase to (in this case $931).
- Return the Monthly Deposit amount to 500, clear the interest rate text box, and press calculate to reveal how high of an interest rate you would need to earn in order to save $1 million in 30 years (answer = 8.7%).
- Return the interest rate % to 6, clear the Number of Years box, and press calculate, to figure out just how long it would take to save that much if your goal date isn’t set in stone (38.4 years instead of your original 30).