This website promotes a basic truth: if you save now, you’ll prosper in the future.
But for this truth to change your life, it’s not enough just to read about it.
For frugality to change your life, you need to convince yourself of its powerful reality—and getting yourself convinced requires active investigation.
In order to convince you how much frugality can change your life I’ve prepared a new kind of interactive calculator: FVAnnualSavingsCalc.
FVAnnualSavingsCalc lets you actively investigate how a greater level of frugality might affect your own finances. It works by answering this central question:
how much will you prosper when you permanently lower household spending and invest the resulting savings each and every year?
Household spending is a great source of savings. Why? Because lurking somewhere in the dark financial recesses of most households is a festering pool of hidden waste and inefficiency. When you learn the tricks to spot and correct these common flaws, your bills drop immediately—and, more importantly, the savings keep piling up for years to come.
It’s easy to understand that wealth will accumulate when you reduce spending, deposit the proceeds, and leave them untouched.
Everyone knows that.
But the burning question is this: how much will you earn if you make these changes now and how much time will it take for those savings to grow big enough to change your life?
That’s where FVAnnualSavingsCalc steps in.
To work the calculator, you only make three entries:
1. Your Annual Household Spending. A ballpark estimate works fine, but if you want more accuracy here’s a quick approach that produces an accurate annual spending figure in about an hour.
2. Percent Saved on Household Spending. The typical frugal newbie can expect to save about 20 percent per year. That’s how much is gained by cutting out waste and inefficiency. But by making even more aggressive cuts, it’s possible to slash annual living costs by 50 percent or more. You’ll be astounded by the amount of wealth that aggressive frugality creates. So let the calculator work its magic. Try inputting different percentages that reflect ever larger spending cuts and see how that affects the future value of your wealth.
3. Annual Rate of Return. This input predicts the rate your savings will grow each year. For a conservative estimate, enter five percent or less. If you’re interested in exploring the effects of higher rates, consider this: many financial planners project 8 percent as an average return for portfolios heavily invested in stocks.
|1. Annual Household Spending:||$|
|2. Spending Reduced By X Percent:||%|
|3. Rate of Return on Investments:||%|
Calculate Future Value Now!
1. FVAnnualSavingsCalc is designed to show the effects of making percentage cuts to your annual household spending. If you want to calculate cuts in terms of dollars instead of percentages, you can do so by making an easy adjustment. Just enter 100,000 into the first box of the calculator. Next, enter your desired savings stream stated as a percentage of $100,000. For example, to figure out the future value of $18,547.50 per year in savings, enter 100,000 into the first box and 18.5475 into the second box.
2. FVAnnualSavingsCalc assumes that you deposit your savings at the start of each year. The cumulative total of these deposits is reported in the column entitled: “Accrued Savings.”
3. The “Future Value” column reports the year-end future value (FV) of your annual payment stream (P) at the interest rate (ir) you inputted for however many years (n) you make deposits (up to 50 years). Here’s the formula:
FV = P * ((1 + ir)n – 1) / ir) * (1 + ir)
For example, if you deposit $10,000 on January 1 for 20 straight years at an interest rate of 5.5 percent, at the end of the final year your savings stream will have a future value of $367,860.76. Here’s how the formula works as shown by several simplifications:
$10,000 * ((1 + .055)20 – 1) / 0.055) * (1 + 0.055) =
$10,000 * ((1.9177574906) / 0.055) * (1.055) =
$10,000 * (34.86831801090909) * (1.055) =
$10,000 * 36.78607550150909 =
4. Try moving your mouse over the blue dots on the chart. Cool animations will ensue.
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If FVAnnualSavingsCalc motivates you to cut your household spending, then it’s served its purpose well.
To help you get started on the road to frugality, I’ve prepared more than 50 checklists that suggest cuts you can make to every line item of your household budget. The checklists are free to use. A good way to start using them is to review my easy-to-read introduction (which incidentally features my all-time favorite knock-knock joke).