.KEYWORD fcplus
.FLYINGHEAD MANAGE YOUR MONEY
.TITLE Understanding financial calculators
.OTHER
.SUMMARY The Palm organizer is a great device for keeping your life in order. With the addition of a few new pieces of software, the Palm device can also help you manage your money (and perhaps save a bit for a sunny day). PalmPower has scored another coup by recruiting financial expert Elia Freedman to introduce us to the class of software called "financial calculators". In this informative article, he helps us understand how to use a financial calculator to calculate and save money on mortgages and plan investments that can make you money over the long term. Show me the money!
.AUTHOR Elia Freedman
When I first picked up a PalmPilot, I was impressed with the small, shirt pocket design, the ease at which I was able to learn Graffiti, and capabilities that the built-in applications offered. One of the most glaring weaknesses I saw, however, was the limited built-in calculator. Sure, it does the basics — you can add, subtract, multiply, and divide — but often I needed more. In particular, I needed financial calculations.
At the time, there weren’t any other financial calculators available for the PalmPilot, so we (at Infinity Softworks) set out to write our own: FCPlus (and later FCPlus Professional). Now, of course, there are many special-purpose calculators available. A quick search of a Palm software archive (like Ray’s Software archive at http://www.palmcentral.com) will likely yield over a hundred choices. Plus, there are now other fine commercial products like SynCalc from Synergy Solutions.
In this article, we’ll help you understand how you can use your Palm device to do financial planning. Because my company wrote the FCPlus products, I’ll obviously be using them in my examples. But you can use pretty much any calculator with good financial functions to do the same thing.
.H1 Functionality with FCPlus Professional
Before we talk about how to perform your own financial calculations, you need to know a little about the calculators themselves. We have two versions of the product. One is FCPlus (at $19.99) and the other is FCPlus Professional (at $39.99). While both work quite well, the Professional version offers more advanced features for the finance professional. We’ve included a link to a product comparison table in the Product Availability section at the end of this article. Throughout this article, we’ll be talking about FCPlus Professional, but you can do many of the same functions with the less expensive FCPlus product.
FCPlus Professional is split into two sections. The main screen performs general mathematical calculations while the worksheets perform financial, business and statistical calculations.
As shown in Figure A, the main calculator allows the user to work in either standard or RPN input modes, performing many advanced calculations including power, square root, natural log, and exponential.
.FIG A Here you can see FCPlus Professional’s Main Screen, Time Value of Money worksheet and Calculation Log.
It features ten memory locations to store numerical data, plus accesses the system clipboard through copy and paste. The memory locations and system clipboard can also be used to move data between the worksheets and the main calculator. In RPN mode, you can view the entire twenty number stack and manipulate data within it by using swap, move, drop, duplicate, copy, and rotate functions. FCPlus Professional also offers a worksheet to view past calculations (as shown in Figure A, redisplayed below) and another to edit and view the stored memory locations.
.FIG A Here are the financial calculator screens, redisplayed.
The second section is the financial, business, and statistical worksheets (as shown in Figure A, redisplayed above). FCPlus Professional offers a worksheet structure instead of a single-value display window. By seeing entire problems at once, it becomes simpler to analyze your financial data.
.H1 Understanding the variables
FCPlus Professional can help you get a handle on your debts and assist in financial planning. Many questions can be asked and answered. How much will you pay each month? Of that amount, how much interest do you pay? What can be deducted on your taxes? How much am I paying over the life of a loan? Is one loan better than another loan? For investments, you can determine return after x-number of years, amount to invest each month to amass a certain wealth, or an optimal interest rate, just to name a few possibilities. You would use the Time Value of Money worksheet to perform these calculations.
There are eight pieces of information needed to solve these types of problems: present value, future value, payment amount, interest rate, periods, the payment timing, periods per year, and compounding periods per year.
As shown in Figure B below, you can enter a value for a variable by tapping the solid-bordered button that contains the label. This accesses the Input screen. Enter the amount on this screen and then tap the "SV" button to save ("CN" will cancel and void the changes you have made to the value). Calculate an amount by tapping on the dotted-bordered button that contains the value. Only those values that can be calculated have dotted-borders.
.FIG B Enter a variable value.
As mentioned before, there are eight pieces of information pertinent to any annuity, loan or lease calculation. The "Present Value" is the value of the investment in today’s dollars. The "Future Value" is the value of the investment at the end of the investment time while the "Payment" amount is the amount paid each period.
For our purposes, we are not going to concern ourselves with the compounding periods per year; instead we will assume it is the same as the periods per year. The default for "Periods per Year" is 12, which designates that there are 12 periods in one year (monthly payments). "Periods" is the number of periods over the life of the investment. This is usually the number of years times the periods per year. "Payment Timing" designates when the payment is due, whether at the Beginning or Ending of the period.
Most loans occur at the end of the period while most leases at the beginning. Finally, the "Interest per Year" is a percentage earned for allowing someone else to use your money, or the additional paid so you can borrow someone else’s.
.H1 Example 1: Calculating mortgages
Often, a financial calculator is used to calculate loans. For example, let’s say that you want to buy a home. You need to borrow $120,000 to purchase that dream home. The bank is offering an interest rate of 7.25% over 30 years. How much do you pay each month (not including taxes and other purchasing costs)?
Here are the various inputs:
.BEGIN_LIST
.BULLET A mortgage, like other loans, occurs at the end of the month, so we set the Payment Timing to "END."
.BULLET The loan amount, or Present Value, is $120,000.
.BULLET At the end of the time period, we would have paid off the entire mortgage, so the Future Value should be 0.
.BULLET The Interest rate is 7.25% and Periods is set to 360 (30 years x 12 periods per year).
.BULLET We pay monthly, so Periods per Year and Compounding Periods per Year are 12.
.END_LIST
To enter each of these values, we tap the solid-bordered label button and enter the value in the Input screen. To answer the question and calculate the Payment amount, we tap the dotted-bordered value button, which should give us an answer of $818.61. This value is negative because it is paid out of our pocket. Inflows of cash are positive values and outflows are negative for each of the three amount fields (present value, future value, and payment amount). See Figure C for a graphical display before and after calculating the answer.
.FIG C How much home can you afford?
.H1 Example 2: Investing for the Long Haul
Financial calculators are also often used for investment decisions and planning. Let’s say that you have 30 ahead of you on the job before you plan to retire. Today, you have $15,000 in various savings, checking and investment vehicles and your would like to determine how much you would need to put aside each month to become a millionaire. You want to start investing today and have been told that you can find fairly risk-free investments for 10%.
A good financial calculator can help you determine this amount. Here’s how you’d do it:
.BEGIN_LIST
.BULLET Since you want to start investing today, you need to set the Payment Timing to "BEG."
.BULLET The Present Value is $15,000 and is entered as a negative number because you are depositing this in a bank (it’s an outflow to the bank).
.BULLET Our Future Value is a positive $1,000,000 and the Interest per Year is 10%.
.BULLET Again, we are putting aide money each month for 30 years, making the Periods 360 and the Periods per Year and Compounding Periods per Year equal to 12.
.END_LIST
.PAGE
When we calculate Payments, we find that we only need to invest $308.18 per month to reach our goal, as shown in Figure D.
.FIG D A financial calculator can help with investment decisions.
.H1 Rounding it up
A good financial calculator not only expand the Palm device’s built-in calculator’s usefulness, it also gives important financial functionality that can assist you in making important debt and investment decisions.
.BEGIN_SIDEBAR
.H1 Product availability and resources
FCPlus and FCPlus Professional are available from Infinity Softworks at http://www.infinitysw.com.
SynCalc is available from Synergy Solutions at http://www.synsolutions.com.
If you want to compare FCPlus to FCPlus Professional, visit http://www.infinitysw.com/fcpvpro.html.
A wide variety of Palm device calculators can be had at Ray’s archive at http://www.palmcentral.com.
.END_SIDEBAR
.BIO Elia Freedman is President of Infinity Softworks and an avid financial calculator user. He can be emailed at elia@infinitysw.com.
.DISCUSS http://www.component-net.com/webx?13@@.ee6c30a
