How Financial Planning Calculators Work

Getting your finances in order can sometimes be easier with a little Web-based assistance.
Getting your finances in order can sometimes be easier with a little Web-based assistance.

A complete financial debacle can make even the most money-savvy among us re-examine our pecuniary health. It can send the average investor, saver or planner into a tailspin quest for a crystal ball.

Enter the financial-planning calculator. When the economy turned in the first decade of the millennium, these easy-to-use predictors vastly expanded their online presence. Now, they're featured not only on bank and investment-house Web sites, but they've also become more common on the Web pages of individual accountants, financial planners, government sites, colleges and money blogs.

Lots of people concerned about their financial situation, or simply initiating or revising a financial plan, are turning to these tools to help them reach their financial goals. It's no wonder: You input some data and a computer program spits out what you should do in order to reach a secure retirement, save effectively for college, apply for the right mortgage, invest in the right stocks and successfully choose the right path in countless other areas of financial planning.

But there's a catch: They're not always right. Sometimes, the programs themselves are flawed, or they rely on financial predictions they don't disclose. And even when the program is relatively sound and transparent, the more potentially accurate the output, the more complex the input requirements, resulting in an experience that turns out to be sadly subject to user error.

Still, financial calculators do have a pretty solid place in creating a reasonable financial plan. In this article, we'll find out what online financial calculators can do and how to use them to your advantage. We'll examine the pros and cons of the tools and see what users should look out for when working with these automated tools. They're far from crystal balls, but considering they're typically free to use, they're a lot cheaper than the human version.

Or are they?