Newton’s Law in Personal Finance: Applying Principles of Motion to Financial Stability

Getting started with organizing your finances can feel daunting. Often, we freeze because there seems to be an overwhelming number of considerations. It’s akin to Newton’s first law: a body at rest will remain at rest until acted upon by an external force.

A clear example of this can be seen with health insurance. Many people are aware of the importance of health plans, yet they often delay taking action until a serious illness affects them or a loved one. Similarly, thoughts about retirement and its financial implications often only surface when individuals are in their forties or even later, sometimes in their fifties.

Let me help you break through this inertia. Start by setting a simple goal. If you’re a young parent, focus on saving for your child’s education. If you’ve been working for a while, start thinking about your retirement. And if you’re younger and have big dreams, aim for something like getting an MBA from a good school.

Let’s create a simple financial planning sheet in Google Sheets for the goal of funding a child’s graduation, accounting for inflation. Here’s how you can set it up step by step:

Now, let’s calculate the future cost of the goal after accounting for inflation:

Future Cost Calculation:

Future Cost = Cost Today * (1 + Inflation Rate)^Years
Future Cost = ₹20,00,000 * (1 + 0.05)^10
Future Cost = ₹20,00,000 * 1.62889
Future Cost ≈ ₹32,57,780

So, the estimated cost of funding your child’s graduation after accounting for 10 years of 5% annual inflation would be approximately ₹32,57,780.

Here’s how you can lay out the sheet in Microsoft Excel or Google Sheets:

This initial step lays out your goals and outlines the target funds needed.

The next crucial step is determining what actions are needed to achieve these goals. Create a new table, enter the target amount, note the number of years, and replace inflation with expected rates of return—say, fixed deposits yielding around 7%. Use the PMT function to calculate the monthly investment required to reach each goal. Let’s do it now:

Calculation of Required Monthly Investment:

To calculate the monthly investment required to achieve the target amount with expected returns, you can use the PMT function in Excel or Google Sheets. Assuming monthly investments:

Monthly Investment Calculation:
Monthly Investment = PMT(Expected Rate of Return / 12, Years Until Start * 12, 0, -Target Amount)
Monthly Investment = PMT(0.07 / 12, 10 * 12, 0, -32,57,780)
Monthly Investment ≈ ₹21,996

Setting Up the Financial Plan Sheet:

This simple sheet helps you visualize and plan for the financial goal of funding your child’s graduation, while accounting for inflation. You can replicate this structure for other financial goals by adjusting the title, current cost, years until start, and inflation rate accordingly.

Setting a clear and specific goal provides direction and motivation to start organizing your finances. It allows you to focus your efforts and resources on achieving something tangible and meaningful. Remember, taking that first step, no matter how small, can set you on the path toward greater financial stability and success.

You’ll discover that setting your targets and planning how to achieve them isn’t as daunting as it may seem. This structured approach assists you in breaking down your financial goals, considering inflation, and planning for them through systematic investments. Using Excel or Google Sheets makes it easier to track and adjust your financial plan over time. If you’d like a pre-made Excel version of this template, please let me know by leaving a comment below.

Thanks to Newton’s first law of motion, once you get started, you’ll find it easier to calculate this for your other financial goals as well.