Calculate Rates to Manage Your Money Better
You can’t be in control of your finances until you know your numbers. Understanding how much exactly you earn, spend and save is a crucial first step. These numbers are needed to work out your budget and make plans for your financial future. To understand your financial situation, you need to be able to know:
- How much interest do you pay on your debts?
- How much interest do you earn on your investment?
- What percentage of your income are you managing to save?
Calculating Paid Interest Rate
How much you pay or receive in interest is determined by an annual percentage rate, or APR. It is the cost of borrowing the funds per year, for the length of the loan. The APR includes fees and additional costs, but it does not factor in compounding. In other words, it is the interest rate plus other charges. Your APR will be calculated as a percentage of the amount borrowed.
If you thought your APR and interest rates were the same thing, you’re not alone. Many people, even the experts, don’t have a clear answer when asked. Even the Director of the U.S. Consumer Financial Protection Bureau needed a little help recently. The calculations can be a little complex. If you need some help figuring out your APR, our APR calculator can make it easier.
Compounding builds interest upon interest. When you are paying compound interest, you end up paying more than the stated interest, and it can snowball quickly. Each time the interest is compounded, it increases the amount of interest you need to pay. You can check this yourself by using the compound interest calculator and comparing your results.
Calculating Earned Interest Rate
The good news is that compounding also works when you’re saving too. Compounding increases your Annual Percentage Yield (APY) which is very similar to your APR. APR and APY are both used for describing your interest rate paid (on a loan, or an investment). The main difference is that APY includes compound interest in its calculations, while APR does not.
If you want to know how much compound interest is generated, you can use our Compound Interest Calculator. This same calculator can be used to figure out either the compounded amount or the original balance.
Know Your Savings Rate
Your savings rate is the amount of money you put aside for long-term goals divided by your total disposable income. It’s usually quoted as a percentage. Maximizing savings rate is a crucial action you must take to build wealth effectively. By doing this, you can move towards financial independence, regardless of your salary.
Deciding Between Paying Off Debt or Saving Money
Knowing your rates can help with many decisions. For example, you have debt with a low APR. Do you pay it off as soon as possible, or pay the minimum and invest the difference? It depends. Our debt vs. savings calculator may help you make the best decision for your situation. It shows your effective loan interest and saving interest rates. Once you see the numbers, you can decide if you should save or pay off your debt.
Before you start budgeting and building your financial plan, the first step is to understand how much you really earn, how much you pay for your debts and what you are saving right now.