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How Financial Planning Calculators Work


What Financial Planning Calculators Can Do
Financial planning calculators help supplement the old five-function models as part of your financial arsenal.
Financial planning calculators help supplement the old five-function models as part of your financial arsenal.
Photo courtesy of Michigan.gov

It's certainly a tempting prospect: a free program you can access from the comfort of your own home, input a few basic bits of information, and find out what you need to do to achieve financial security.

While it's not really that straightforward (more on the shortcomings on the next page), an online tool can definitely be a big help in making financial plans, especially if you're at a bit of a loss for where to begin. Lots of us have our bank statements, tax returns and stock-dividend notices in our file drawer with no idea how to combine that information to reach the most basic overall financial strategy.

There are countless versions of the financial-planning calculator out there, ready to advise on the most specific financial question. Some come in software form, and some are actual physical calculators. But the ones gaining the most attention these days are the free online tools. Just a few of the online calculators you'll find on two popular money-oriented Web sites, CNN Money and ABC News Money, will estimate:

  • Return on a mutual-fund investment if you sell now
  • How exchange rates affect potential foreign stock investments
  • Returns on tax-exempt vs. nonexempt bonds
  • Whether a credit card's annual fee will save you money in the long run
  • How much you'll pay to raise a child
  • The effects of inflation on personal savings
  • How much you need to be putting away so you don't outlive your retirement savings
  • How much you'll earn in the long run by reducing your spending now
  • How much mortgage you can afford
  • Whether and how much you'll save by refinancing your mortgage
  • Whether you should save or spend your tax refund
  • How much you can afford to borrow for college

These types of computerized calculations can be a great way to start thinking about a financial strategy -- but the key word here is "start."