Financial planning can involve a lot of calculations, right from ascertaining the right investment budget for your goals to tracking how your investments are performing. Calculations are a cumbersome yet unavoidable part of your finances. So, the sooner you take care of them, the more clarity you can have about where you stand and what you have to do to get where you want to be. There are several figures floating in a financial plan that you may have to account for, such as inflation, return rates on investments, interest rates on loans, income tax rates, capital gains tax rates, etc. These can seem confusing and even intimidating. However, their effect on your finances is significant. So, you must make sure not to ignore them.
One of the issues when calculating the various aspects of your financial plan, such as retirement, healthcare, taxes, etc., is that the figures keep changing. Inflation is not likely to be the same every year. Your income will also increase, and so will your investment budget. Your expenses will increase, and your debt liabilities can differ from one time to another. It can be nearly impossible to calculate these manually and repeatedly. Thankfully, a financial planning calculator can help. Online calculators are free to use and extremely simple and straightforward. They are also accurate, so you do not get any errors while planning your future. If you wish to know about different kinds of financial calculators and how they can benefit you, consult with a professional financial advisor who can advise you on the same.
There are several types of online financial calculators that you can use. Here are some of them and how they can help you.
1. Retirement savings calculator:
A retirement savings calculator can help you determine how much you need to save for your retirement. Retirement planning is critical. Your comfort and security in retirement will depend on how well you save for the future now. If you fall short, you may suffer in several ways post-retirement. For instance, you may not have adequate funds for your daily needs, health expenses, travel, etc. You may find it hard to cover long-term care expenses, too. Therefore, it is vital to make sure that you plan for it well. A retirement savings calculator can be an ideal tool to help you do this. Retirement planning is a wide concept, so you can use a couple of different calculators for this. Here are some common questions that you may have for which a calculator can help:
a) When should I begin saving for retirement?
Ideally, the right time to begin saving for retirement is as soon as you can. The day you start your first job and earn your first income, you can start contributing to a retirement fund, too. The sooner you start saving for retirement, the higher your retirement corpus and the less burdened you are while creating it. However, if you have not yet begun saving or if you would want to know how much you can save if you start today, you can use a retirement calculator for the same. Here are the steps to use it:
- Enter your present age
- Enter your anticipated retirement age
- Mention your annual savings amount
- Enter the percentage increase in your annual savings
The retirement calculator will tell you how much you can save in total, depending on when you start your journey. If you are contemplating saving now or in the future, this calculator can help you understand the repercussions of each option.
b) Are my retirement savings sufficient?
The second question that you may have while planning for retirement is if your retirement savings are enough. There are several aspects that can impact your retirement savings. For instance, you may have started saving when you were single. But over the years, if you get married or have children, you could require more retirement savings for your family's complete financial protection. These changes in your personal life can have you wondering if your retirement savings are enough or if you need to step up your game. A retirement calculator can help you understand this. Here are the things you need to enter to find out:
- Enter your present age
- Enter your current annual income
- Enter your spouse's annual income
- Mention your current retirement savings balance
- Enter your current annual savings amount
- Enter the percentage increase in your annual savings
The retirement calculator will tell you if you need to save more or if your savings are ideal for your present age, income, and goals. Accordingly, you can make the necessary changes to your plan.
c) How will retirement impact my living expenses?
A retirement expense calculator can help you determine what your retirement expenses are going to be like in the future. A typical retirement can include expenses like healthcare, home renovations, travel, food, clothing, and other similar needs. It can be hard to calculate the precise cost of all of these and others. However, a retirement expense calculator can provide a realistic picture of what it could be like. If you plan to use the retirement expense calculator, you would need to enter your itemized income like interest on savings accounts, Social Security benefits, pensions, dividends from stocks, alimony, etc., and your itemized expenses like rent, loan, state and federal taxes, Social Security taxes, mortgage, food, childcare, clothing, insurance, travel, gifts, and other similar ones. The calculator will provide you with a detailed answer about how much you are likely to need to cover all your expenses in retirement.
d) How can I plan my savings with a Roth and traditional 401(k)?
A significant part of your retirement savings comes from your Roth and Traditional 401(k). A 401(k) is an employer-sponsored retirement plan that can help save tax and, at the same time, prepare for retirement. You can invest in either of the two – a Roth or Traditional 401(k). They are essentially the same with one distinction. Both accounts are taxed differently. In a Roth 401(k), you can contribute your after-tax dollars. This means your money grows tax-free, and your withdrawals are tax-free after the age of 59.5. If you select a Traditional 401(k), you can contribute pre-tax dollars. Your money grows tax-deferred, and your withdrawals are taxed as per the prevailing tax slabs in retirement after the age of 59.5. If you are confused about which one to choose, you can use a Roth and traditional 401(k) retirement calculator. Here's what you need to do:
- Enter your present age
- Enter your annual contribution
- Enter the age when your retirement income should start
- Mention the number of years to receive an income
- Mention the before-tax return on your savings for the distribution phase
- Enter your income tax bracket for the distribution phase
- Mention the before-tax return on your savings for the accumulation phase
- Enter your income tax bracket for the accumulation phase
The calculator will help you compare both options – a Roth and Traditional 401(k). Once you have reviewed both, you can pick one as per your liking and needs.
2. Savings calculator:
A savings calculator is a brilliant tool as it can help you plan for diverse goals. Savings are generally mapped to more than one goal. You could be saving to buy a car or a home, to send a kid to college, or to travel the world. No matter your goal, if you want to make sure that you reach the desired target in the set timeline, you would have to pick a suitable savings instrument that can offer enough growth. You would also have to account for inflation and taxes that can interfere with the final value of your savings. All of these variables can be hard to calculate manually. So, you can use a savings calculator. Here's how:
- Enter your current savings balance
- Mention your desired savings goal
- Next, enter the before-tax return on savings
- Finally, select a marginal tax bracket
The savings calculator will give you an accurate heads-up of how much to save and for how long to continue saving to reach your target. This can help you plan better and avoid any frustration and disappointment along the way.
3. Inflation calculator:
Inflation refers to the rise in the prices of goods and services over the years. It plays a crucial role in future financial planning as it can render your savings less valuable. America has been able to maintain a relatively low and stable inflation rate, unlike many other countries in the world that have gra``ppled with inflation and hyperinflation time and again. The average annual inflation in the country has been 3.10% between 1913 and 2019. If things continue the same, you will have little to worry about. However, it is still important to consider the impact of inflation on your savings and invest enough to counter it. If you fail to plan for inflation, you may have to live a compromised lifestyle.
In order to beat inflation, you must ensure that your investments earn a higher return than the rate of inflation. For instance, if the inflation rate is 3% and you earn a 3% return on your investment, you would neither suffer a loss nor earn any money. Further, if your return is 2%, you would lose money. The ideal situation is where you earn more than the inflation. For instance, if you earn 5%, you will make a real profit. There are many inflation-beating options that you can consider, such as stocks, equity mutual funds, etc. These can carry high risk, but they also deliver high returns. You can pick any of these and others as per your risk appetite.
It is essential to know how to calculate inflation rate to ensure foolproof savings. However, it can be a complicated process with several variables at play. Instead, you can use an inflation calculator to understand how inflation and taxes affect you. Here are the things you need to enter:
- Mention the before-tax return on savings
- Enter the federal marginal tax bracket
- Mention the assumed inflation rate
- Enter the state marginal tax bracket
- Mention if you itemize deductions
An inflation calculator is an easy tool that can give you error-free estimates and help you plan for the future.
4. Investment calculator:
Investment calculators can help you understand the multiple facets of investment. They can help you pick a suitable investment amount and compute the returns over the selected investment term. An investment calculator can be used for multiple types of investments, right from stocks and bonds to exchange-traded funds, mutual funds, and more. It can be challenging to take cognizance of numerous factors like market highs and lows, demand and supply, inflation, taxes, etc. when calculating your investment returns. This is why using an online financial planning calculator can be much more convenient. Here are the things you need to do to use an investment calculator:
- Enter the investment amount.
- Enter the start date of your investment
- Enter the end date of your investment
- Enter the rate of return
- Select how often the return is compounded, such as annually, monthly, half-yearly, etc.
The investment calculator will compute the value of your returns at the end of the investment term assuming inflation, market changes, and other factors.
Benefits of using a financial planning calculator:
Using a financial calculator can be advantageous in more ways than one, such as:
- Online calculators help you save time and effort. You can finish lengthy and complex calculations in a matter of a few minutes.
- These calculators give you accurate results that you can base your plans on. There is no ambiguity or confusion. Instead, you can make realistic plans and strive for a financially secure future.
- Online calculators can be used for a variety of needs, such as loans, investments, inflation, retirement planning, budgeting, and more.
- You can use an online calculator for free.
To summarize
An online financial planning calculator is a simple but effective tool that can be of tremendous value to any investor. It can help you plan a future without errors of judgment. It enables you to prepare for a secure life that is free from any financial worries. And above all, it offers a roadmap for you to follow. If you want to live a financially protected life, you can consider using any one of the financial calculators mentioned in this article. For more help, you can also reach out to a financial advisor in your area.
Use the free advisor match service to engage with a professional financial advisor, who can help you understand the different ways in which financial calculators can help you figure out your financial goals and whether you are on track to attaining them or not . Based on your requirements, the service matches you with 1-3 advisors suited to meet your financial needs and goals.