So now, exactly what does a discounted cash flow calculator do for you? Well, as a first time home buyer you really have to budget your money before you buy that first house. So below I will describe how this calculator works and explain ways it can help you make decisions for the future.
There's an old saying out there, "I have too much month left over at the end of my money". Does your cash flow situation look bleak at the end of each month? I know you understand what I'm talking about. This happens to many of us especially if we're younger and just getting started in setting up housekeeping.
Sadly, our school systems do not really teach people how to budget their money. So I had this discounted cash flow calculator created to help visitors to my website make informed decisions.
As you know, cash flow goes both in and out plus it varies each month. However with a little help you might be able to figure out how much you can actually afford to spend each month. Also, this will help you figure out how much money you can save each month.
I can remember when I first got married in 1976 and learned the hard way how having a budget became very important. Just because you have a little cash left over at the end of a month sometimes, can you really spend it? Or is it possible some or all of the extra money (does not happen too often) should be saved for other bills?
This discounted cash flow calculator is designed to convert all the inflows and outflows into monthly equivalents. This will make it easier so you can see how much money you can really afford to spend each month.
This is setup much like a budget for a business. When you think about it, you should run your household like a business anyway. So you'll notice the calculator below has several sections (6 in all) designed to help you think out each and every expense and source of income.
So starting at the top section, just work your way through each section giving careful thought to each line item. The first section is for cash inflows while the other 5 sections are for various types of outflows.
Once you complete each section, after giving thought to each line item and how many times money comes in and goes out, you will find a really tight budget for yourself.
So for example, maybe you get paid every two weeks. If that is the case, you enter 26 payments and the amount you get paid every two weeks. The calculator will figure your annual income for you. Also, it carries it forward on into the other sections. If you have a car payment, well you enter 12 and the amount you pay each month and this also will carry forward for you.
Then as you enter the cash outflows, it will subtract it from your income and once you're done you end up with a true picture of your financial standing.
So now you see why I call this a discounted cash flow calculator since at the end of the month your cash is discounted by all the expenses. Each section will give you a monthly total. The very bottom section will show you all the totals for cash inflow and outflows. Then just click the orange button at the bottom that says "create report" and you can print off the results.
Hopefully you'll find this helpful in planning to buy your first home. It's very important that you take all income and expenses into account so you can have a realistic picture of your monthly budget. Be sure to allow for a little cushion. Things can change from month to month.
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