Just a Click Away?

Financial calculators can help you crunch the numbers when making buying or borrowing decisions. But the numbers are not the whole story.

Should I buy that car or lease it? Can I afford this new house? How much money should I set aside for emergencies? How much interest can I save by making extra principal payments on my mortgage? How long before I become a millionaire?

Those used to be fairly involved and difficult calculations. Now they’re quite easy, thanks to financial calculators widely available on the Internet. With a few basic pieces of information in hand, you can generate the figures to support all kinds of financial decisions.

You don’t have to know the formula. You just have to enter the data, and the program does the math for you. Of course, the numbers alone won’t always resolve the key issue at hand. For example, the numbers may tell you it’s better to invest more money than to pay extra on your mortgage principal – but you may simply like the idea of being mortgage-free sooner. And if so, fine.

Still, it’s nice to go into a financial decision with the hard figures in hand – armed with data instead of just hunches, or “gut feel,” or some advice you got from a financial planner (who may not be without personal bias).

Easy to find

You can find these calculators easily. For example, most real estate agency Web sites will have a mortgage calculator to figure your monthly payment on the house you want to buy. Car, boat and recreational vehicles dealer Web sites have similar calculators.

And that’s just the beginning. A simple Internet search under “financial calculators” will bring up numerous sites that offer dozens to hundreds of calculators for almost any purpose you can imagine. For example:

• Should I convert to a Roth IRA?

• How will inflation affect my retirement income needs?

• How much money can I accumulate by saving instead of buying lattes, eating out every Friday, or renting fewer videos?

• Should I pay extra points to get a lower mortgage rate?

• Should I consolidate my personal debt?

• How much life insurance do I need?

Think of almost any financial question you have and chances are there’s a calculator to help you crunch the numbers.

When to retire

Among the most popular calculators are those that tell you how much you need to save to retire, or how soon you can retire at your current rate of saving and pattern of investing. Of course, these illustrate a pitfall of putting too much faith in calculators: By definition, they are based on certain sets of assumptions that may or may not apply to you and how you plan to live your life.

For example, I ran the retirement calculator on Yahoo! and found that I need to save 48 percent of my annual income from now on if I want to retire at age 65. That might send me into deep despair, unless I considered the assumptions behind the result. The key assumption is that I plan a traditional retirement, where you build up a big pile of money and coast on it from age 65 until you die.

My “retirement” plans differ from that model in important ways. Most significant: I’m a writer by trade, I enjoy the work, and I expect to do it for pay, at some level, for as long as I have my health and faculties. That greatly changes the calculus. It may be the same for many people who own drain cleaning service businesses: They may prefer to dial back the workload but stay involved to some degree for many years.

Taking a test spin

It’s worth a few minutes to give some of these calculators a try. By doing so, you get a feel for their capabilities and limitations.

One of the most popular calculators on Yahoo! is labeled, “How much will college cost?” It’s really about the feasibility of repaying student loans based on income from a first full-time job. You and your college-age kids might enjoy trying this one. I plugged in the four necessary figures:

• Anticipated initial income on graduation: $30,000

• Initial loan amount: $30,000

• Interest rate: 8 percent

• Payment period: 120 months (10 years)

The calculator responded: “Your estimated monthly loan repayments are $364, which equate to 14.6 percent of your anticipated monthly income. This appears to be within reasonable limits based upon your anticipated income and debt repayments.”

Then I tried: “How long will it take to pay off my credit card?” The necessary figures are:

• Initial credit card balance: $10,000

• Annual percentage rate: 18 percent

• Minimum payment percentage: 2 percent

• Minimum payment amount: $200

• Skip December payment when offered? Yes

• Additional payment amount: $0

The calculator responded: “By only making minimum payments, it will take 114 more payments, or 9.5 years, to pay off the remaining balance. Interest will amount to $10,945.” Then I said I would decline the privilege of skipping the December payment and would pay $200 beyond the minimum each month. Now I am paid off in 32 months, or 2.7 years, and the total interest is $2,628. There’s a good object lesson for a family member (or for yourself if need be).

Buy or lease?

Then I looked at a calculator sure to interest business owners who invest in capital equipment: “Should I lease or purchase an auto?” (Of course, the same basic math applies to leasing equipment of any kind.)

You simply plug in the term of the lease (or purchase loan), the down payment, any additional lease fees or security deposit, the monthly lease payment, the purchase price, the sales tax percentage, other up-front purchase costs, the loan interest rate, and the market value of the item at the end of the lease.

Click Submit, and there will be your answer. Of course, that last item may be a bit hard to calculate, but if you can get a good fix on it, you can get a useful cost comparison.

Here again, the numbers don’t tell the whole story: monthly cost and even total cost are not the only factors in deciding whether to lease or buy.

Still, having data on your side can’t be a bad thing. One thing the online calculators do is give you the hard figures, so you’re prepared as you make decisions, or when you go and talk to a financial professional about a loan, insurance policy, or other product. A little information can be handy to carry in your pocket.


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