Syndicate
Amounts of Savings in Monthly Installments
This system refers to the systematic savings system done in a monthly form, which will be maintained accumulatively with the “system”, to a convenient interest rate. This system does not consider payment at the beginning of the period, but is the case of a person who, from the only source of monthly income, is able to set aside a sum destined to savings. For instance:
F = P * 100 / r * ( ( 1 + r / 100 ) ^ ( n * 12 ) – 1 )
P = monthly savings amount, expressed in US dollars.
F = future value, expressed in US dollars.
r = monthly interest rate, expressed in percentage.
n = number of years.
As can be seen the future value is directly in proportion to the monthly savings amount. To make it easier we have put the monthly amount as being of 1 US dollar so that the result can be multiplied by the equivalent of the saved monthly amount so that each person on their own is able to do their own exercise on it. The period we are going to be talking about will be that of twenty years. An analysis of three alternatives of interest rates that the market offers will be developed, in function to the “risk” that the person desires to take on.
Results
For the option of minimum risk, we will use 0.5 percent as real monthly rate, the monthly amount that is saved of 1 US dollar for twenty years will have turned into $462. If we supposed that this same amount in installments was of $240, at the end of the period we will have obtained a global profit of almost ninety percent. If the monthly amount, instead of having been of 1 US dollar would have been for instance of $300, then the figure obtained at the end of the period would have been equal to $138,000. This is an amount that is not very impressive though. In the case of medium risk of 1,0 percent as the real monthly rate, the monthly amount that will have been saved is of 1 US dollar will have now transformed into $989. If we suppose that the total amount saved was of $240, at the ending of the period, we would have obtained a global profit of almost 305 percent. If the monthly amount, instead of having been that of 1 US dollar, would have been for example, $300, then the figure obtained at the end of the period would have been equal to $297,000. The figure obtained begins to look more attractive. If we were to analyze the option of greater risk of 1,6 percent, as a real monthly rate, the initial amount of 1 US dollar will have transformed into $2,758. If we suppose that the total amount saved was of $240, at the end of the period we will have obtained a global profit of almost 1.030 percent. If the monthly amount instead was of 1 US dollar, it would have been for instance, $300, and then the amount obtained at the end of the period would have been equal to $827,000. The figure obtained in this case is very impressive.