Compound interest and amortization

[Viraj Alankar]

Hello,

I can't really figure out whether something like compound interest and amortization is possible in forecasting.

For example, let's say I have an account that earns a 5% APY interest, and I'd like to forecast, where the interest is calculated after compounding.

Similarly the other way, with a loan that compounds interest, to forecast taking into account future payments.

Thanks,

Viraj.

[Bob Wilson]

Hi Viraj,

   (I recently joined the Google group and discovered your post. Hope my comment is still useful!)

I have a hacky way of doing this with automatic transactions. Weird context: I use "4x entry accounting". A typical transaction involves two virtual entries and two real entries, like:

2023/05/01 * Starbucks
    [Funds:Food]                    -$5.00
    [Assets:Checking]                $5.00
    Assets:Checking                 -$5.00
    Expenses:Food                    $5.00

The idea is that in one sense, all of my money is in Funds, and has to be transferred to some account in order to spend it. This is my implementation of "envelopes" from You Need A Budget.

That context is irrelevant to your question, but explains some of the syntax that follows.

I'll use my 401k as an example. The money in my 401k is in a Fund (which I label as a Goal so I can do goal tracking). I have a bunch of entries that look like:

2024/01/01
    [Goals:Retirement]                   = $0.00
    [Income:Interest:Placeholder]

2025/01/01
    [Goals:Retirement]                   = $0.00
    [Income:Interest:Placeholder]

One transaction per year, going until my planned retirement year. These basically say, take all the money out of the Goal account, and relabel it as Income. I put a Placeholder tag on the income to avoid mixing this up with real interest.

Then I have an automatic transaction:

;; Retirement forecasts with interest calculations
= /Income:Interest:Placeholder/

    [$account]                           -1.0
    [Goals:Retirement]                    1.0
    Income:Interest:Account             -0.06
    Assets:Investments:Retirement        0.06
    [Assets:Investments:Retirement]     -0.06
    [Goals:Retirement]                   0.06

The idea here, is that in the first tx, I moved all the money in the account to an Income category, so now the automated tx "knows" how much money is in the account. Then I put the money back in the Goal account in the first two lines of the automated tx. Then I take that amount and multiply by my predicted return, 6%. (Is that overly ambitious? Idk, put whatever number there you want.) Then I take that return and add it to the account.

As I said, it's hacky, but it works!