How to Calculate Future Value

Calculating future value is one of the most frequently performed financial calculations.

wikinvest defines future value as "the amount that an investment made today will grow into at some point in the future." The Ultimate Financial Calculator is designed to calculate the FV under any scenario, for any cash flow.

While the classic FV example assumes a series of future deposits and answers the question "What will be the value of the accumulated deposits plus interest as of some future date?", for this example, we are going to turn things around. We will assume a starting value with periodic withdrawals so that we can answer the question "What will be the value after making "X" number of withdrawals for "Y" amount?". But if you follow along, you'll see just how easy it is to also answer the former question.

All users should work through the more detailed first tutorial to understand the Ultimate Financial Calculator's (UFC) basic concepts and settings.

To calculate the future value of a cash flow, follow these steps:

1. Set "Schedule Type" to "Savings"
   • Or click the [New] button to clear any previous entries.
2. Set "Rounding" to "Adjust last amount to reach "0" balance" by clicking on{Settings} {Rounding Options}
3. In the header section, make the following settings:
   1. For "Calculate Method" select "Normal".
   2. Set "Initial Compounding" to "Daily".
   3. Enter 4.5 for the "Initial Interest Rate".

4. In row one of the cash flow input area, create a "Deposit" series
   1. Set the "Date" to October 1, 2024
   2. Set the "Amount" to 50,000.00 (this is the cash on hand)
   3. Set the "# Periods" to 1
      • Note: Since the number of periods is 1, you will not be able to set a frequency. If a frequency is set, it will be cleared when you leave the row

5. In row two, create a "Withdrawal" series
   1. Set the "Date" to October 1, 2024
   2. Set the "Amount" to 1,000.00
   3. Set the "# Periods" to 48
   4. Set the "Frequency" to "Monthly"

6. Create a 3rd series by clicking on row 3. Set the "Series" to "Withdrawal"
   1. Set the "Date" to September 1
      • We reset the date to the "End Date" because we want to know the future value of this cash flow immediately after the last withdrawal was made
   2. Set the "Amount" to "Unknown"

7. Click the [Calculate] button
   • The result is "$7,225.50"

8. To see a detail cash flow schedule showing what the initial deposit earns in interest, click on the [Schedule] button.
   • Notice that the withdrawals will total $55,225.49
   • And the initial deposit earned $5,225.49 in interest even as it is being depleted due to the withdrawals.

Note: Anytime you want to know the future value, the last entry has to be "Unknown". You can create as many deposits and / or withdrawals as you need and their amount, interest rate and dates can vary, but to calculate the FV, set the last row to an unknown amount.

You can automatically increase or decrease the withdrawal amount by clicking on "Cash Flow Options" and selecting either "Amount Step" or "Percent Step". The percent step feature can be used as an inflation adjustment. For example, if you want to assume 2% annual inflation and you want the monthly withdrawal to keep pace with inflation, you need to set up a percent step of 0.1666% (2.0% / 12).

There are two variations to the future value calculation the Ultimate Financial Calculator can handle.

Variation: You can easily find the future value of a series of deposits as well. Using the above example, set the second event to "Deposit" in Step 5 and set the "Date" to November 1, 2024. So rather than withdrawing $1,000 a month, we are saving $1,000 every month starting one month from the cash on hand date. Reset the 3rd series' "Date" to October 1, 2028 and the "Amount" to "Unknown". Click [Calculate]. Now the future value is $112,582.05.

Second Variation: You can also determine the future value of a single amount (as opposed to a series). Again, using the original example as a starting point, click on the 2nd input row. Delete this row by clicking on the [Delete] button. Set the "Date" to October 1, 2028 and the "Amount" to "Unknown" and recalculate. Now the future value is $60,017.52. So a present value of $50,000 will be worth, or have a future value of $60,017.52 in four years assuming a 4.5% nominal annual interest rate with daily compounding.