Calculate the True Cost of Debt


in Chart,Cornerstone Series,Retirement,Savings,Spreadsheet

As my wife and I head towards debt freedom working through our debt snowball I use a variety of methods to keep us motivated. For me that has included looking at what our debt is costing us as it relates to our future. It’s simple, every dollar you spend on interest to your lender is money that could be working for you. For us the more we looked at it and understood the amount of potential earnings we were losing it was an easy choice. It doesn’t come without sacrifice and hard work but like anything worth doing attitude can change everything. Enough philosophizing dude show us some graphs!

What Could I be Earning With No Debt

If you have gone through the exercise of mapping your debt payment plan aka the Debt Snowball, Debt Tsunami, Debtsaster 2009 you’ll know when you are debt free.  Now you can use that information to very easily see what you could be earning on that same amount of money if it’s working for you in some form of investment.


For this discussion we are going to make some assumptions about what you’d put that money in which we’ll assume to be in a stock based mutual fund that earns a 10% return year over year. Is this a safe assumption? Not based on today’s world but over the lifetime of a lot of good mutual funds this is a conservative number. We’ll use the not so hypothetical monthly payment of $1317 that was our monthly debt payments and use that as our monthly investment. Finally we’ll assume that you are going to use all of that $1317 to pay yourself rather than spend on other pursuits. You don’t really need a new iPhone anyways.

Calculate Future Value with WolframAlpha

WolframAlpha Toolbar

I know I’m a total WolframAlpha fanboy but this is such a useful free tool I can’t recommend it enough. Alright using our assumptions let’s just look at what we could save in 5 years. Enter this in the WolframAlpha search bar: future value, level payment 1317 $ monthly,interest rate 10%

By default it should show you the future value at 5 years. It’s a simple exercise to change your investment period, interest rate, or investment which I would highly recommend for your own situation. This is a good base way to go, but what if you want to kick the geek factor up a bit? Yeah? “All you can handle bro!”

Calculate Future Value with a Spreadsheet Graph

WolframAlpha is handy for a quick calculation but if you want a really wicked awesome format that you can print out and stick to your refrigerator than I present to you a FiscalGeek staple the spreadsheet. I personally use Microsoft Excel it’s arguably one of the most useful programs Microsoft makes. You could also use various others but that’s up to you and your mileage may vary. Second you need to download the savings calculator spreadsheet from Vertex42. If you’ve never been there Vertex 42 is like spreadsheet holy ground. You can find templates for most anything. Yes they happen to have this version in a Google Docs or OpenOffice compatible format as well.

At this point it’s incredibly simple to start doing some modelling for your potential investment or retirement. Let’s once again look at our base assumptions but this time pick a 30 year timeframe. Inputs:

  • Years to Invest: 30Savings Calculator
  • Initial Investment: –
  • Expected Annual Interest Rate: 10.00%
  • Deposit Amount: 1317
  • Deposit Frequency: Monthly

Now if this doesn’t blow you away I don’t know what will. If we take our assumed monthly debt payment and invest it for 30 years it will be worth $2,977,062.60 I think most everyone except Elton John could retire on that easily enough. Put your numbers in there, print it out and paste that sucker somewhere where you’ll look at it every day for motivation.

Other Uses of the Savings Spreadsheet

I use this spreadsheet all the time to calculate my opportunity costs for various purchases. That is what’s the cost for future savings if I spent that dollar amount now. Especially useful for those stricken with car fever.

Further Reading

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