Understanding the Mathematics of Personal Finance

A NOTE ABOUT TOTAL INTEREST FOR A YEAR

When adding up the total interest paid or received for a year for income tax purposes, it is important to look at the details very carefully. For example, suppose you are paying a loan back monthly, with payments due on the first day of the month. If you regularly send your payments right on time, your lender will be crediting your payment, approximately, on the eighth day of the month. An end of the year summary statement mailed to you for tax purposes in 2010 will show the 12 payments made in 2009.

Now, suppose that, for whatever reason, you mailed your January 2010 payment on December 20 of 2009. It is possible that it reached your lender and got credited to your account in 2009. This means that your 2009 statement will correctly show 13 credited payments. If you then go back to your regular schedule of mailing pay­ments on the first of the month, your 2010 statement will show only 11 credited payments. There are no errors here; you just have to be careful to report what actu­ally transpired.

My website spreadsheets are all set up assuming payments for a month are made or received on the first day of the following month. You can correct these calcula­tions as needed for your situation.

3.3 ONLINE CALCULATORS

Again, there are so many of these available that I just picked a few:

1. www. bretwhissel. net/amortization/amortize. html;

2. www. bankrate. com/brm/popcalc2.asp;

3. www. vertex42.com/Calculators/loan-amortization-calculator. html.

This website provides a spreadsheet that you can download and use or modify: www. vertex42.com/ExcelTemplates/loan-amortization-schedule. html.

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Understanding the Mathematics of Personal Finance

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