The $40 Self Directed MBA Finance Course

This article is part of The 45-Minute MBA series, where you’ll learn everything you need to know about business to become an effective leader of your organization (in less than 45 min of reading). 

Today I’m offering you an exclusive opportunity: I’ll teach you everything I learned in my $2000 semester-long MBA Finance class for just $40 and a few minutes of your time.

Finance is comprised of 2 parts: calculations and analysis.  In this article I’m going to focus on calculations.   I’ll discuss analysis stuff in my next article.

But before I teach you about financial calculations, I’m going to tell you about the most important business tool you need to have in your arsenal.

The Financial Calculator

The financial calculator is critical to your success in applying MBA knowledge.  This was the first thing I bought on the way to business school.  There are all sorts of makes and models, but they all do the same thing.  A decent calculator will cost about $40.  I was able to download an app for my Iphone that’s a mirror image of the financial calculator I bought in the store, the HP 10BII,  from Itunes for $5.99.  It’s so convenient I rarely use anything else!

There are also many free online resources that can help you make financial calculations.  Most of them are designed to provide a specific output such as return on investment, mortgage payment, or car loan payment.  Bankrate.com and dinkytown.net are excellent resources for these types of calculations.

The Most Important Financial Calculation

99% of the time you’ll use the financial calculator to calculate the time value of money.  This is the most important and most practical financial calculation.  You can calculate everything from mortgage payments if you’re buying a home to the future value of your retirement account.  I use this calculation almost daily to make financial decisions.

Now I’m going to teach you how to calculate the time value of money using a standard financial calculator.  Please reference the picture below if you don’t have a financial calculator.  This is a picture of the keypad on the HP 10BII calculator Iphone app.

There are 5 variables associated with the time value of money calculation and they’re listed on the top row of the calculator in the picture above.  They are:

N – Number of time periods

I – Interest rate for time period

PV – Present value of your account

PMT – Payment made each time period

FV – Future value of your account

The easiest way to explain this calculation is to give you a few examples…

Time Value of Money Examples

First I’ll show you how to calculate the future value of your retirement account.

Let’s say that the present value of your retirement account is $10,000 and you plan to invest $1000 per year until you retire in 30 years.  You expect an annual return of 8%.  How much will you have when you retire?

To find the future value (FV) of your retirement account, you enter the following information into the calculator:

N= 30

I = 8

PV = 10,000

PMT = 1000

FV = ?

After entering the values into the calculator, you can see that the future value (FV) of your retirement account will be $213,909.78 after 30 years.

Now let’s say that you want to retire in 30 years with an account balance of $500,000.  What would you need to invest each year to reach your goal?

N= 30

I = 8

PV = 10,000

PMT = ?

FV = -500,000 (you must enter this as a negative amount)

The answer is $3525.44.  See how it works?

More Time Value of Money Problems and Solutions

Here’s another example: let’s say you want to buy a new home and you’re trying to figure out how much monthly payment you can afford.  You like a house that requires you to borrow $300,000 for 30 years at 6% interest.  How much is your monthly payment?

In this problem, since we pay the mortgage monthly, we’re going to convert all time periods to months.

N = 360  (30 x 12)

I = .5 (6/12)

PV = 300,000

PMT = ?

FV = 0

After entering this information into the calculator we find out that our monthly payment will be $1798.65.

What if your budget is $2500/ month, how much can you afford?

N = 360

I = .5

PV = ?

PMT = -2500 (you must enter as a negative amount)

FV = 0

You’ll be able to borrow $416,979 to say within your budget.

I like using a actual financial calculator vs. an online calculator because I can use that single equation for any type of time value of money calculation.  I can calculate everything from auto loan payments to investment return by using the 5 key variables on the top row of the keypad.  I can also create “what if” scenarios to help me make better financial decisions.

OK; ready to learn about that $40 course?  Here you go!

Head over to Staples, buy yourself a financial calculator ($40), and read the instruction book (30 min).  I guarantee you’ll learn just as much as I did in the 50+ hours I spent in my $2000 professional MBA course.

Important Disclaimer:  There is another part to finance (the analysis) which I’ll discuss in the next 2 articles.  Don’t worry… your additional investment will only be the 3-4 minutes it takes you to read each article.      

If you’d like to join my mission to teach you everything that I learned in business school in less than 45 minutes of reading, please enter your email address in the form on the side of the page.

Here’s what I’ve covered so far:

The 45-Minute MBA

How to Make Money Without a Job

Purpose of an Income Statement

How to Read a Balance Sheet

Advantages of a Cash Flow Statement

Thanks for reading and have an excellent week.

-Scott

Scott Mackes is a leader and founder of the site “Margin of Excellence”. Connect with Scott on facebook and twitter.

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