AllFinancialMatters

A personal finance blog dedicated discussing such topics as budgeting, asset allocation, 401K, IRA, cash flow, insurance, financial planning, portfolio management, and other areas in personal finance.

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Friday, August 12, 2005

College Funding Math - Part IV

This is the last post in the College Funding Math series. Hopefully, by following the previous three posts, you have an idea of how to use math to figure out how to meet a goal. I also hope that you weren't bored to death by reading these posts!

In Part III, we figured out that with a beginning balance of $3,000, Hector's parents would need to save an additional $3,206 per year, invested to get 8% annual return, in order to meet his future college funding needs.

Now, with this post, I will show you an example of what all this looks like laid out in a spreadsheet. To conserve space, I had to abbreviate some of the titles for the columns. Here's a listing of each title means:

Age = Beginning Age, for this example Hector is 5.
Beg. Amt. = The balance at the beginning of each year. Since we have $3,000 already saved up, that is the beginning amount for the first year. We are also assuming that the deposits are made at the beginning of the year.
Ann Dep = Annual Deposit, which is $3,206. Deposits are made at the beginning of each year.
Total = The total of the Beg. Amt and Ann Dep. columns.
Withdrawal = Amount withdrawn to pay for college.
Ending Balance = (Beg. Amt + Ann Dep - Withdrawal) x 1.08

      Beg.    Ann            With-   Ending
Age Amt. Dep Total drawal Balance
5 3,000 3,206 6,206 $6,702
6 6,702 3,206 9,908 $10,700
7 10,700 3,206 13,906 $15,018
8 15,018 3,206 18,224 $19,682
9 19,682 3,206 22,887 $24,718
10 24,718 3,206 27,924 $30,158
11 30,158 3,206 33,364 $36,033
12 36,033 3,206 39,238 $42,377
13 42,377 3,206 45,583 $49,230
14 49,230 3,206 52,435 $56,630
15 56,630 3,206 59,836 $64,622
16 64,622 3,206 67,828 $73,254
17 73,254 3,206 76,460 $82,577
18 82,577 3,206 85,782 $24,513 $66,170
19 66,170 3,206 69,376 $25,739 $47,128
20 47,128 3,206 50,333 $27,026 $25,172
21 25,172 3,206 28,377 $28,377 $0
There you have it. It is pretty self-explanatory. However, if you have questions or comments about this series, please let me know and I'll be happy to answer them.

Once again, I would like to thank the UnknownProfessor at the FinancialRounds blog for his help with the formula. It is always nice to count a professor among your friends.

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