Getting the Most from Financial Calculators

At some point during every client meeting, I pull out my HP 12C (yes, I know it’s sad) and help calculate key figures. How much you need for retirement, how much you need for college, how long it will take to pay off debt, how much you can earn on your investments...the list goes on. There are hundreds of calculations we do and the web is full of financial calculators to help. Still, I find clients often struggle with using online calculators. They know how to enter the data but interpreting the results is challenging.

Here are 2 key questions you should ask yourself when using online calculators:

• What’s the action/decision? After you’ve run a calculation, ask yourself, “based on these figures, what action or decision should I take?” You may need to save more, spend less, be more aggressive in your investment choices, get a second job, etc. Numbers alone are irrelevant – it’s the action or decision they prescribe that’s important.
• What can you control? Online calculators will ask you to enter a ton of data such as starting balance, interest rate, tax rate, monthly contribution, age, marital status, what you ate last night, your dog’s name...etc. While the information helps the calculator spit out a number, only certain inputs are in your control. For example, you can control your monthly savings but can’t control the tax rate. Identify the inputs you can control and enter different assumptions. How does it impact the numbers? At what point would you make a different decision?

Financial calculators can be extremely powerful when they help you make better decisions about your financial future. A few calculator sites I’ve found helpful include BankRate, Dinkytown and CalcXML. Regardless of which calculator you choose, remember that the numbers are only part of the story – how they impact your actions is truly what matters.

Which online financial calculators do you use? What questions do you ask yourself when using financial calculators?