Guest User
Glossary
Predicting the Future (Future Value, That Is)

#### The Value of Knowing Future Value

You've probably studied formulas of one type or another in your math or science classes. Given that, computing future value won't be that tough; it's just another formula, and we'll walk you through it step by step. Even still, you might be wondering, why on earth do I need to know this? When could I ever use this in my life? What possible value is this to me? Well, if any of those questions crossed your mind, consider the answers to the following situations:

This Is Your Life: A Pocket Full of Change… You have \$50 in change in your piggy bank. You have no plans to spend it (no retailer will accept that much change). Instead of just leaving it in there forever, you could just as easily leave it sitting in a savings account forever. Let's call forever, oh, about 20 years. If your savings account is paying you 3% interest, how much will that \$50 be in 20 years?

 This Is Your Life: You're In the Money… Your grandmother is impressed by your tremendous success in high school and, upon your graduation, gives you \$10,000! You know what the current value is… it's \$10,000 and you could purchase \$10,000 worth of stuff right now. An alternative could be that you save the \$10,000. Let's say you save it at 4% interest. The question is, how much stuff would that get you in 20 years, 30 years, or 40 years? What is the future value of \$10,000?

 This Is Your Life: Here Comes the Bride… (or Groom!) You've been working for quite some time and have saved \$5,000. It took you so long to earn that money, you'd like to keep from spending it and deposit it in the bank until you get married. You figure that is probably about 15 years down the road. If your bank is paying 4% interest, how much will \$5,000 be in 15 years?

These situations may or may not directly apply to you, but they certainly could. Clearly, there are a number of situations in life that would call for you to know what the future value of your current money is. What will \$50 grow to in 20 years? What could \$10,000 grow to? No matter the reason your need for money in the future, you can count on one thing… you will ALWAYS need money in the future! And the formula we discuss in this lesson will help you calculate future value. We will return to these scenarios throughout the lesson so that you can figure out the answers.