How to Calculate Future Income

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Future income is profit gained over time from investing money. In other words, if an amount of money is invested in a savings account today, how much will it be worth in five years, 10 years, or 20 years. You can calculate future income by using the simple Time Value of Money formula.

Things You'll Need

  • Calculator

Simple Interest

  • Calculate annual interest earnings. For example, if you are earning 5 percent on $20,000, you could calculate the annual interest rate like this:

    $20,000 x 0.05 = $1,000

    This means every year $1,000 would be earned from $20,000 with a 5 percent annual interest rate, assuming "simple interest" is given, as opposed to compound interest.

  • Multiply the interest earned in one year by the total number of years you plan to hold the investment. For example:

    $1,000 x 10 = $10,000

    In 10 years $20,000 will generate $10,000 from interest.

  • Add the sum from Step 2 to the total amount of money invested. For example:

    $10,000 + $20,000 = $30,000 future income.

Compound Interest

  • Write the investment amount (principle) which can be represented by "P."

  • Write down the annual interest rate, which can be represented by "r."

  • Write down the number of years for the duration of the loan, which can be represented by "n."

  • Write out the formula as show in the following example. In this equation you will be solving for "A" which represents the total amount of money:

    A = P (1 + r )n

    or, if the investment amount was $1,000 with a 10 percent interest rate over five years, it would be written as:

    A = 1,000 (1 + 0.1)5

References

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