The post Use These 11 Math Equations To Budget Like A Genius (4K Views) appeared first on munKNEE.com.

]]>**1. Amortization**

**How to use it: **This equation calculates how much a monthly payment will be on a debt. Rearrange the equation algebraically to show what portion of each monthly payment will go towards interest and toward the principle.

**Best for:** Calculating the cost of long-term debt like mortgages, car loans, student loans, etc.

**2. Simple Interest**

**What it is:** Simple interest is interest earned from principal.

**How to use it: **This calculation can be done quickly to provide an idea of how much interest will accrue over time. Just remember: This equation ignores the effects of compounding. You’ll get an error when you’re working with a larger principle and longer stretches of time.

**Best for: **A rough estimate on what you’ll earn in a savings account, or pay on a loan or a credit card.

**3.** **Compound Interest**

**What it is:** The compound interest is the interest earned on the principal, and any interest accrued in the past.

**How to use it:** Use this formula instead of the simple interest equation to get a more precise number for how much interest will accrue.

**Best for:** Determining how much actual interest you will earn over time on an investment or pay on a debt.

**4. Cash Flow**

**What it is:** Cash flow shows how much you earn in relation to how much you spend.

**How to use it:** See whether or not you’re living within your means. If the number is negative, you’re spending too much; if it’s positive, put the leftover money in savings.

**Best for:** Figuring out where to tighten your budget.

**5. Present Value of an Ordinary Annuity**

**What it is:** The present value of an annuity equates a series of payments in the future to a lump sum today by using the time value of money (inflation)—a dollar today is worth more than a dollar tomorrow.

**How to use it:** Receiving $100 today is more valuable than having $10 handed to you every year for the next 10 years, because you could invest the $100 today and then earn interest on it over the decade.

**Best for:** Deciding whether to take a pension or lottery prize as an annuity or a lump sum.

**6. Future Value of an Ordinary Annuity**

**What it is:** The time value of money is also an important concept for the future value of an annuity, or the worth of your payments down the line.

**How to use it:** This equation answers the question: Should you take $10 payments each year for 10 years, or a lump sum of $120 in 10 years?

**Best for:** Seeing what it costs to pay someone with regular payments over time or upfront. Examples: child support, insurance, etc.

**7. Compound Annual Growth Rate**

**What it is:** As the economy moves up and down, so do investors’ returns. To determine your yearly growth rate over several years on an investment, use the compound annual growth rate, CAGR.

**How to use it:** Think of CAGR as the rate an investment would grow if the rate were constant. Investopedia has a good numerical example of this concept.

**Best** **for:** Determining the average rate of growth on a stock, bond, portfolio, real estate, or any type of investment over multiple years.

**8. Leverage Ratio**

**What it is:** The leverage ratio compares debt to income. Total debts and liabilities are debts like student loans, mortgages, auto loans, and even the $5 you owe a friend.

**How to use it:** Aim for the lowest leverage ratio you can. Anything less than one is excellent, since you could pay off every debt with your income in one period.

**Best for:** Measuring your liquidity and determining whether you can afford to take out a loan.

**9. Rule Of 72**

**What it is:** The rule of 72 is a quick approximation of how long it will take to double an investment.

**How to use it:** Take the rate of return on the investment and divide 72 by it to determine how many years it will take to double your money.

**Best for:** Choosing multiple stocks, bonds, or savings accounts.

**10. Expected Return Of A Portfolio**

**What it is:** The expected return of our portfolio shows what overall rate of return we’re likely to get on all our investments.

**How to use it:** Everyone wants great returns, but their tolerance for risk is different. This equation can help determine the perfect mix of risky and safe investments.

**Best for:** Seeing if your portfolio has the right combination of stocks, bonds, CD’s, etc.

**11. Credit Card Equation**

**What it is:** The ultimate equation for figuring out how long you’ll be paying off your credit card.

**How to use it:** Though it’s the most complex equation on this list, it’s still easy to do with a calculator. Use it to see whether or not you should pay more on your bill each month.

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“Equations definitely CAN be dull, and they CAN seem complicated…but you CAN appreciate the beauty and importance of equations without knowing how to solve them…..[My] intention was to locate them in their cultural and human context, and pull back the veil on their hidden effects on history. Equations are a vital part of our culture. The stories behind them — the people who discovered/invented them and the periods in which they lived — are fascinating” and some are particularly relevant to anybody affected by the current financial crisis. [Let’s take a look.] Words: 2072

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