Essential Financial Formulas Everyone Should Know
13 formulas
The formulas ranked here represent the essential financial mathematics that everyone encounters — whether applying for a mortgage, evaluating an investment, planning for retirement, or simply calculating a tip. Each formula translates abstract financial concepts into concrete numbers.
Mastering these formulas (or knowing which calculator to use) empowers better financial decision-making. Understanding compound interest alone — what Einstein allegedly called the eighth wonder of the world — can fundamentally change how someone approaches saving and borrowing.
How we ranked these
Ranked by financial impact and universality. Formulas that affect the largest number of people's daily financial decisions rank highest.
## What Is Compound Interest? Compound interest is interest calculated not just on the original principal, but also on the interest that has already accumulated. This creates an exponential growth cu
## Total Interest on a Loan The total interest paid over the life of a loan is simply: $$I_{total} = (EMI \times n) - P$$ Since every EMI payment covers both interest and principal, the total amoun
## Continuous Compounding Continuous compounding is the mathematical limit of compound interest as the compounding frequency approaches infinity: $$A = Pe^{rt}$$ Here, e ≈ 2.71828 is Euler's number
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## What Is EMI? An Equated Monthly Installment (EMI) is the fixed amount paid by a borrower to a lender each month on a fixed date. The EMI formula is: $$EMI = P \times \frac{r(1+r)^n}{(1+r)^n - 1}$
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## What Is Jeonse-Wolse Conversion? Korea's unique jeonse (전세) system allows tenants to pay a large lump-sum deposit (전세금) instead of monthly rent. The landlord keeps this interest- free deposit for
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## Real Return (Inflation-Adjusted Return) The Fisher equation calculates the real rate of return — the return after accounting for inflation's erosion of purchasing power: $$r_{real} = \frac{1 + r_
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## Remaining Loan Balance Formula The outstanding principal remaining after making k monthly payments on a standard amortising loan is: $$B_k = P \times \frac{(1+r)^n - (1+r)^k}{(1+r)^n - 1}$$ This
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## Simple Interest Formula Simple interest accrues only on the original principal, not on previously earned interest: $$I = P \times r \times t$$ Total amount after interest: A = P + I = P(1 + rt)
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