Using future value to plan for a new home
Imagine you're saving for a down payment on a house, and a realistic deposit in your area hovers around the $25,000 mark. You want to know how much you have to set aside in an ultra-safe high-yield savings account to reach that goal in five years. You find a savings account with a 5% annual interest rate, start with an investment of $15,000, and plug your data into an online calculator:
FV = $15,000 (1+ 0.05)^5 = $19,144
That’s not quite enough. What if you can scrape together $5,000 more and go to work with an initial investment of $20,000 instead?
FV = $20,000 (1+ 0.05)^5 = $25,526
So $15,000 isn’t quite good enough, but $20,000 in that savings account will do the trick, with some cash to spare. Now you’re ready to put together the initial investment you need and start watching House Hunters on repeat for the next five years.