if a problem can be solved with money

• Starting a Business
• Growing a Business
• Small Business Guide
• Business News
• Science & Technology
• Money & Finance
• For Subscribers
• Write for Entrepreneur
• Entrepreneur Store
• United States
• Asia Pacific
• Middle East
• South Africa

Copyright © 2024 Entrepreneur Media, LLC All rights reserved. Entrepreneur® and its related marks are registered trademarks of Entrepreneur Media LLC

27 Quotes to Change How You Think About Problems Great minds give you the benefit of their experience.

By Daniel Marlin Edited by Dan Bova Apr 21, 2017

Opinions expressed by Entrepreneur contributors are their own.

It happens to even the most seasoned of entrepreneurs. You've built momentum for your latest project, you're excited to embrace new challenges and you've visualized success at the end of the road.

But all of a sudden an unexpected problem stops you dead in your tracks -- and this one seems impossible to solve.

Yes, major hurdles are disheartening, and they're often unavoidable. But the way you engage with and think about problems directly influences your ability to solve them.

Here's how some of the world's smartest people think about problems and how you can learn to overcome them.

Related: 4 Effective Ways Leaders Solve Problems and Stop them Before They Happen

1. "We cannot solve our problems with the same thinking we used when we created them." – Albert Einstein

2. "Problems are not stop signs, they are guidelines." – Robert H. Shuller

3. "All problems become smaller when you confront them instead of dodging them." – William F. Halsey

4. "Not everything that is faced can be changed. But nothing can be changed until it is faced." – James Baldwin

5. "Sometimes problems don't require a solution to solve them; Instead they require maturity to outgrow them." – Steve Maraboli

6. "Every problem is a gift. Without them we wouldn't grow" – Tony Robbins

7. "Life is not a problem to be solved, but a reality to be experienced." – Soren Kierkegaard

8. "If you can solve your problem, then what is the need of worrying? If you cannot solve it, then what is the use of worrying?" – Shantideva

9. "It isn't that they cannot find the solution. It is that they cannot see the problem." – G.K Chesterton

10. "Problems are nothing but wake-up calls for creativity" – Gerhard Gschwandtner

11. "We fail more often because we solve the wrong problem than because we get the wrong solution to the right problem." – Russell L. Ackoff

12. "A positive attitude may not solve your problems -- but it will annoy enough people to make it worth the effort." – Anonymous

Related: 4 Ways to Maintain a Positive Attitude Even When You're Stressed

13. "Running away from a problem only increases the distance from the solution." – Anonymous

14. "Problem-solving leaders have one thing in common: a faith that there's always a better way." – Gerald M. Weinberg

15. "Each problem that I solved became a rule, which served afterwards to solve other problems." – Rene Descartes

16. "Your ability to solve problems and make good decisions is the true measure of your skill as a leader." – Brian Tracy

17. "If you are unable to understand the cause of a problem, it is impossible to solve it." – Naoto Kan

18. "A problem is a chance for you to do your best." – Duke Ellington

19. "Giving up is the most painful way of solving a problem." – Anonymous

20. "Instead of thinking out the box, get rid of the box." – Deepak Chopra

21. "Solving problems means listening." – Richard Branson

22. "Inside of every problem lies an opportunity." – Robert Kiposaki

23. "There is no problem outside of you that is superior to the power within you." – Bob Proctor

24. "You can increase your problem-solving skills by honing your question-asking ability." – Michael J. Gelb

Related: Entrepreneurship Is Not About Problem Solving

25. "Don't bother people for help without first trying to solve the problem yourself." – Colin Powell

26. "If a problem can be solved it will be. If it cannot be solved there is no use worrying about it." – Dalai Lama XIV

27. "All life is problem solving." – Karl Popper

Entrepreneur, marketer, business consultant.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Editor's Pick Red Arrow

• Lock Want to Start a Simple Business That Helps the Planet? After 'One Night's Worth of Research,' He Started an Eco-Friendly Gig and Now Makes $200,000 a Year
• I've Negotiated High-Pressure, Multi-Million-Dollar Deals for Artists Like Bruno Mars and Enrique Iglesias — Here's the Strategy That Always Helps Me Win
• Lock This Toxic Money Habit Is Becoming More Common — If You've Picked It Up, Your Finances Are at Serious Risk , Expert Warns
• 'This Year Almost Broke Me': Tom Schwartz Reveals 'Scandoval' Almost Shut Down His Restaurant After Losing 80% of His Business
• 'Not What Anybody Signed Up For': A Legal Expert Weighs in on the Labor Rule That Could Destroy Franchising
• Lock Anyone Can Try the Simple Strategy That One Billionaire Investor Used to Make His First Million Dollars Tax-Free

Most Popular Red Arrow

These coworkers-turned-friends started a side hustle on amazon — now it's a 'full hustle' earning over $20 million a year: 'jump in with both feet'.

Achal Patel and Russell Gong met at a large consulting firm and "bonded over a shared vision to create a mission-led company."

How to Turn Your Hobby Into a Successful Business

A hobby, interest or charity project can turn into a money-making business if you know the right steps to take.

These Are the 10 Most Profitable Cities for Airbnb Hosts, According to a New Report

Here's where Airbnb property owners and hosts are making the most money.

Want to Be More Productive? Here's How Google Executives Structure Their Schedules

These five tactics from inside Google will help you focus and protect your time.

How Much Do Engineers, Software Developers, and Analysts Make at Apple? See Salary List

Using application data from highly-skilled foreign workers, Insider revealed a range of salaries at the tech giant.

An Iconic Las Vegas Casino Is Shuttering This Summer After 34 Years

The Mirage will close on July 17.

Successfully copied link

• Get started with computers
• Learn Microsoft Office
• Apply for a job
• Improve my work skills
• Design nice-looking docs
• Getting Started
• Smartphones & Tablets
• Typing Tutorial
• Online Learning
• Basic Internet Skills
• Online Safety
• Social Media
• Zoom Basics
• Google Docs
• Google Sheets
• Career Planning
• Resume Writing
• Cover Letters
• Job Search and Networking
• Business Communication
• Entrepreneurship 101
• Careers without College
• Job Hunt for Today
• 3D Printing
• Freelancing 101
• Personal Finance
• Sharing Economy
• Decision-Making
• Graphic Design
• Photography
• Image Editing
• Learning WordPress
• Language Learning
• Critical Thinking
• For Educators
• Translations
• Staff Picks
• English expand_more expand_less

Money Basics  - Financial Problem Solving Strategies

Money basics  -, financial problem solving strategies, money basics financial problem solving strategies.

Money Basics: Financial Problem Solving Strategies

Lesson 2: financial problem solving strategies.

/en/moneybasics/why-financial-literacy/content/

Financial problem-solving strategies

Have you ever experienced a financial problem? Do you feel like finances are holding you back from reaching your goals? This lesson will give a brief overview of the general problem-solving process and how to apply it to the most common financial problems.

The problem-solving process

First, let's take a look at a general problem-solving process that you can apply to any situation, not just a financial one.

• Identify the problem . The first step in solving a problem is to identify it. What exactly do you need to overcome?
• Make a plan. What are the steps you need to take in order to overcome the problem?
• Implement the plan . This step actually puts the plan you created in place. While it sounds fairly straightforward, this is usually the most difficult step.
• Evaluate the plan . Although this is listed last, this step might actually occur simultaneously with implementing the plan. Things happen and circumstances change, so you may need to re-evaluate your plan as it is happening.

Identifying the problem

The first step in the problem-solving process is to get to the root of the problem and understand what you need to overcome. Here is a list of the most common financial problems people may face:

• Lack of income/job loss
• Unexpected expenses
• Too much debt
• Need for financial independence
• Overspending or lack of budget
• Lack of savings

When thinking about these common problems, each one falls into one of three areas: You need more money, you need to reduce your debt, or you need to change how you spend.

Making a plan

After identifying the problem you need to overcome, it's time to make a plan. Not sure where to start? No worries! We have you covered with some tips and places to begin.

Problem 1: You need more money . Whether you've lost your job, met an unexpected expense, or are working on becoming more financially independent, a form of income is necessary.

If you are a looking for additional work or maybe just a better-paying job, take some time to update your resume and cover letter. Make sure they are neat, up to date with your most current information, and free of spelling and grammar errors.

Be wary of any advertisements or jobs that offer fast, easy money. A lot of quick-cash methods come with unintended consequences. More often than not, if something sounds too good to be true, it probably is.

Problem 2: You need to reduce your debt . With high interest rates or the need to live paycheck to paycheck, high debt can be debilitating. Sometimes it feels like climbing a neverending mountain with an invisible peak. However, by prioritizing and negotiating your debt, you can make it more manageable.

Try listing all of your debt and the interest rates associated with each. Focus on paying off the ones with the highest interest rates first. If you're having trouble making payments, call the loan company and see if it can offer any solutions for you. The company may be able to lower your interest rate or offer a temporary forbearance to help you get back on your feet. If you need more help tackling your debt, you may want to contact a professional debt counselor like Consolidated Credit.

Problem 3: You need to change how you spend . Going from financial problems to a healthy financial status often requires organization and a shift in thinking. Avoiding overspending, building your savings, and gaining financial independence can often be accomplished with good spending habits.

The first thing you may want to try is creating a budget. There are many templates and resources available to help you create one. Sticking to one can be challenging, but simply having a budget laid out can help you see where you need to start spending less.

In addition to your budget, create a savings plan. Start out small. Even stowing away an extra dollar or two here and there can make a big difference. Also, try placing your savings in a place you cannot easily access. For example, create a savings account at a bank you don't usually use. The more difficult it is to access your money, the less likely you are to spend it.

Implementing the plan

Although the explanation of this part is the simplest, this is often the most difficult part to actually execute. It requires self-discipline and perseverance. The most important part of this step is to know that if your plan doesn't work or if you have a difficult time sticking to it, all is not lost. If it happens, move on to the next step, evaluate your plan, then repeat the process.

Overcoming financial obstacles can require changing your lifestyle, and this does not happen overnight. However, just having a plan itself can help to give you confidence and reassurance that you can eventually overcome whatever is in your way.

Evaluating your plan

As you implement your plan, you'll need to continually evaluate it. Maybe something happens and your original plan needs to change. Perhaps you've learned more along the way and realize that your original plan was incomplete. Or maybe your first plan went as planned and was a success. No matter the circumstances, it is always a good idea to look back and re-evaluate. Try answering these questions:

• Was your problem solved? Did a new problem arise?
• What went right?
• What went wrong?
• What circumstances changed?
• Was there anything you didn't account for?
• What was easy about implementing your plan?
• What was difficult about implementing your plan?

Financial obstacles can often seem debilitating and impossible to overcome. They often create a significant source of financial anxiety . We hope this lesson will help give you the confidence to take on your problem one step at a time so you can conquer your anxiety and move forward.

/en/moneybasics/assessing-how-you-manage-money/content/

If you have a problem that money can solve, you don’t have a problem.

Related Topics

Popular Authors

More edgar doucet quotes.

Dumb people spend time to save money. Smart people spend money to save time.

Focus on your destination, not your problems.

You have to stop letting your egos get in the way of your progress.

Haters don’t deserve one second of your valuable attention, so why would you give them any?

The people on your team don’t make money from you unless you make money.

The value of a conversation with somebody could change your whole life.

Don’t spend an unnecessary moment with people who don’t value your time.

Successful men focus on learning valuable information. They aren’t looking for the best price they can get.

Criticism is just a part of life, a prevalent part of life, and somehow, people don’t take it very well.

It doesn’t matter how intelligent you think you are or are supposed to be; if you consistently do dumb things, you’re still dumb.

Your empire is worth more than the temporary people in your life.

You can’t just expect your dreams to materialize because you want them to.

Surround yourself with people who aren’t afraid to give their opinions but aren’t afraid to chase your goals with you.

Your time is your most precious asset. It’s what your life is made of.

The only reason you aren’t changing your life is that you choose to tell yourself excuses.

Your circumstances are 100% your fault.

The only thing you can control in life is your reaction to situations as they unfold. 

Successful people have enough in their hands to keep them busy.

The ability to say no is closely linked to self-confidence.

There is no successful person in the world who was offended by the word loser.

You can’t control the situation, but you can control how you react to the problem.

Your decisions are the reason for your current life situation.

Time is your most valuable asset, and it’s non-renewable.

Champions don’t give up when things get hard; they keep trying.

Focus on learning stuff that helps you take the best actions towards your goals.

Real freeedom involve real dedication. 

If you are afraid to fail, you will afraid to try, and it is far better to try and fail than refuse to try.

Job Loss and Unemployment Stress

Dealing with uncertainty, elder scams and senior fraud abuse, stress relief guide, social support for stress relief, 12 ways to reduce stress with music, surviving tough times by building resilience.

• Stress Management: Techniques & Strategies to Deal with Stress
• Online Therapy: Is it Right for You?
• Mental Health
• Health & Wellness
• Children & Family
• Relationships

Are you or someone you know in crisis?

• Bipolar Disorder
• Eating Disorders
• Grief & Loss
• Personality Disorders
• PTSD & Trauma
• Schizophrenia
• Therapy & Medication
• Exercise & Fitness
• Healthy Eating
• Well-being & Happiness
• Weight Loss
• Work & Career
• Illness & Disability
• Heart Health
• Childhood Issues
• Learning Disabilities
• Family Caregiving
• Teen Issues
• Communication
• Emotional Intelligence
• Love & Friendship
• Domestic Abuse
• Healthy Aging
• Aging Issues
• Alzheimer’s Disease & Dementia
• Senior Housing
• End of Life
• Meet Our Team

Understanding financial stress

Effects of financial stress on your health, tip 1: talk to someone, tip 2: take inventory of your finances, tip 3: make a plan—and stick to it, tip 4: create a monthly budget, tip 5: manage your overall stress, coping with financial stress.

Feeling overwhelmed by money worries? Whatever your circumstances, there are ways to get through these tough economic times, ease stress and anxiety, and regain control of your finances.

If you’re worried about money, you’re not alone. Many of us, from all over the world and from all walks of life, are having to deal with financial stress and uncertainty at this difficult time. Whether your problems stem from a loss of work, escalating debt, unexpected expenses, or a combination of factors, financial worry is one of the most common stressors in modern life. Even before the global coronavirus pandemic and resulting economic fallout, an American Psychological Association (APA) study found that 72% of Americans feel stressed about money at least some of the time. The recent economic difficulties mean that even more of us are now facing financial struggles and hardship.

Like any source of overwhelming stress, financial problems can take a huge toll on your mental and physical health, your relationships, and your overall quality of life. Feeling beaten down by money worries can adversely impact your sleep, self-esteem, and energy levels. It can leave you feeling angry, ashamed, or fearful, fuel tension and arguments with those closest to you, exacerbate pain and mood swings, and even increase your risk of depression and anxiety. You may resort to unhealthy coping mechanisms, such as drinking, abusing drugs, or gambling to try to escape your worries. In the worst circumstances, financial stress can even prompt suicidal thoughts or actions. But no matter how hopeless your situation seems, there is help available. By tackling your money problems head on, you can find a way through the financial quagmire, ease your stress levels, and regain control of your finances—and your life.

While we all know deep down there are many more important things in life than money, when you’re struggling financially fear and stress can take over your world. It can damage your self-esteem, make you feel flawed, and fill you with a sense of despair. When financial stress becomes overwhelming, your mind, body, and social life can pay a heavy price.

[Read: Stress Symptoms, Signs, and Causes]

Financial stress can lead to:

Insomnia or other sleep difficulties. Nothing will keep you tossing and turning at night more than worrying about unpaid bills or a loss of income.

Weight gain (or loss). Stress can disrupt your appetite, causing you to anxiously overeat or skip meals to save money.

Depression. Living under the cloud of money problems can leave anyone feeling down, hopeless, and struggling to concentrate or make decisions. According to a study at the University of Nottingham in the UK, people who struggle with debt are more than twice as likely to suffer from depression .

Anxiety. Money can be a safety net; without it, you may feel vulnerable and anxious. And all the worrying about unpaid bills or loss of income can trigger anxiety symptoms such as a pounding heartbeat, sweating, shaking, or even panic attacks.

Relationship difficulties. Money is often cited as the most common issue couples argue about. Left unchecked, financial stress can make you angry and irritable, cause a loss of interest in sex, and wear away at the foundations of even the strongest relationships .

Social withdrawal. Financial worries can clip your wings and cause you to withdraw from friends, curtail your social life, and retreat into your shell—which will only make your stress worse.

Physical ailments such as headaches, gastrointestinal problems, diabetes, high blood pressure , and heart disease. In countries without free healthcare, money worries may also cause you to delay or skip seeing a doctor for fear of incurring additional expenses.

Unhealthy coping methods , such as drinking too much , abusing prescription or illegal drugs, gambling, or overeating. Money worries can even lead to self-harm or thoughts of suicide.

If you are feeling suicidal…

Your money problems may seem overwhelming and permanent right now. But with time, things will get better and your outlook will change, especially if you get help. There are many people who want to support you during this difficult time, so please reach out!

Read Are You Feeling Suicidal? , call 1-800-273-TALK in the U.S., or find a helpline in your country at IASP or Suicide.org .

The vicious cycle of poor financial health and poor mental health

A number of studies have demonstrated a cyclical link between financial worries and mental health problems such as depression, anxiety, and substance abuse.

Financial problems adversely impact your mental health. The stress of debt or other financial issues leaves you feeling depressed or anxious.

The decline in your mental health makes it harder to manage money. You may find it harder to concentrate or lack the energy to tackle a mounting pile of bills. Or you may lose income by taking time off work due to anxiety or depression.

These difficulties managing money lead to more financial problems and worsening mental health problems, and so on. You become trapped in a downward spiral of increasing money problems and declining mental health.

No matter how bleak your situation may seem at the moment, there is a way out. These strategies can help you to break the cycle, ease the stress of money problems, and find stability again.

When you’re facing money problems, there’s often a strong temptation to bottle everything up and try to go it alone. Many of us even consider money a taboo subject, one not to be discussed with others. You may feel awkward about disclosing the amount you earn or spend, feel shame about any financial mistakes you’ve made, or embarrassed about not being able to provide for your family. But bottling things up will only make your financial stress worse. In the current economy, where many people are struggling through no fault of their own, you’ll likely find others are far more understanding of your problems.

[Read: Social Support for Stress Relief]

Not only is talking face-to-face with a trusted friend or loved one a proven means of stress relief, but speaking openly about your financial problems can also help you put things in perspective. Keeping money worries to yourself only amplifies them until they seem insurmountable. The simple act of expressing your problems to someone you trust can make them seem far less intimidating.

• The person you talk to doesn’t have to be able to fix your problems or offer financial help.
• To ease your burden, they just need to be willing to talk things out without judging or criticizing.
• Be honest about what you’re going through and the emotions you’re experiencing.
• Talking over your worries can help you make sense of what you’re facing and your friend or loved one may even be able to come up with solutions that you hadn’t thought of alone.

Getting professional advice

Depending on where you live, there are a number of organizations that offer free counseling on dealing with financial problems, whether it’s managing debt, creating and sticking to a budget, finding work, communicating with creditors, or claiming benefits or financial assistance. (See the “Get more help” section below for links).

Whether or not you have a friend or loved one to talk to for emotional support, getting practical advice from an expert is always a good idea. Reaching out is not a sign of weakness and it doesn’t mean that you’ve somehow failed as a provider, parent, or spouse. It just means that you’re wise enough to recognize your financial situation is causing you stress and needs addressing.

Speak to a Licensed Therapist

BetterHelp is an online therapy service that matches you to licensed, accredited therapists who can help with depression, anxiety, relationships, and more. Take the assessment and get matched with a therapist in as little as 48 hours.

Opening up to your family

Financial problems tend to impact the whole family and enlisting your loved ones’ support can be crucial in turning things around. Even if you take pride in being self-sufficient, keep your family up to date on your financial situation and how they can help you save money.

Let them express their concerns. Your loved ones are probably worried—about both you and the financial stability of your family unit. Listen to their concerns and allow them to offer suggestions on how to resolve the financial problems you’re facing.

Make time for (inexpensive) family fun. Set aside regular time where you can enjoy each other’s company, let off steam, and forget about your financial worries. Walking in the park, playing games, or exercising together doesn’t have to cost money but it can help ease stress and keep the whole family positive.

If you’re struggling to make ends meet, you may think you can ease your stress by leaving bills unopened, avoiding phone calls from creditors, or ignoring bank and credit card statements. But denying the reality of your situation will only make things worse in the long run. The first step to devising a plan to solve your money problems is to detail your income, debt, and spending over the course of at least one month.

A number of websites and smartphone apps can help you keep track of your finances moving forward or you can work backwards by gathering receipts and examining bank and credit card statements. Obviously, some money difficulties are easier to solve than others, but by taking inventory of your finances you’ll have a much clearer idea of where you stand. And as daunting or painful as the process may seem, tracking your finances in detail can also help you start to regain a much-needed sense of control over your situation.

Include every source of income. In addition to any salary, include bonuses, benefits, alimony, child support, or any interest you receive.

Keep track of ALL your spending. When you’re faced with a pile of past-due bills and mounting debt, buying a coffee on the way to work may seem like an irrelevant expense. But seemingly small expenses can mount up over time, so keep track of everything. Understanding exactly how you spend your money is key to budgeting and devising a plan to address your financial problems.

List your debts. Include past-due bills, late fees, and list minimum payments due as well as any money you owe to family or friends.

Identify spending patterns and triggers. Does boredom or a stressful day at work cause you to head to the mall or start online shopping? When the kids are acting out, do you keep them quiet with expensive restaurant or takeout meals, rather than cooking at home ? Once you’re aware of your triggers you can find healthier ways of coping with them than resorting to “retail therapy”.

Look to make small changes. Spending money on things like a morning newspaper, lunchtime sandwich, or break-time cigarettes can add up to a significant monthly outlay. While it may be unreasonable to deny yourself every small pleasure, cutting down on nonessential spending and finding small ways to reduce your daily expenditure can really help to free up extra cash to pay off bills.

Eliminate impulse spending. Ever seen something online or in a shop window that you just had to buy? Impulsive buying can wreck your budget and max out your credit cards. To break the habit, try making a rule that you’ll wait a week before making any new purchase.

Go easy on yourself. As you review your debt and spending habits, remember that anyone can get into financial difficulties, especially at times like this . Don’t use this as an excuse to punish yourself for any perceived financial mistakes. Give yourself a break and focus on the aspects you can control as you look to move forward.

When your financial problems go beyond money

Sometimes, the causes for your financial difficulties may lie elsewhere. For example, money troubles can stem from problem gambling , fraud abuse , or a mental health issue, such as overspending during a bipolar manic episode .

To prevent the same financial problems recurring, it’s imperative you address both the underlying issue and the money troubles it’s created in your life.

Just as financial stress can be caused by a wide range of different money problems, so there are an equally wide range of possible solutions. The plan to address your specific problem could be to live within a tighter budget, lower the interest rate on your credit card debt, curb your online spending, seek government benefits, declare bankruptcy, or to find a new job or additional source of income.

If you’ve taken inventory of your financial situation, eliminated discretionary and impulse spending, and your outgoings still exceed your income, there are essentially three choices open to you: increase your income, lower your spending, or both. How you go about achieving any of those goals will require making a plan and following through on it.

• Identify your financial problem. Having taken inventory, you should be able to clearly identify the financial problem you’re facing. It may be that you have too much credit card debt, not enough income, or you overspend on unnecessary purchases when you feel stressed or anxious. Or perhaps, it’s a combination of problems. Make a separate plan for each one.
• Devise a solution. Brainstorm ideas with your family or a trusted friend, or consult a free financial counseling service. You may decide that talking to credit card companies and requesting a lower interest rate would help solve your problem. Or maybe you need to restructure your debt, eliminate your car payment, downsize your home, or talk to your boss about working overtime.
• Put your plan into action. Be specific about how you can follow through on the solutions you’ve devised. Perhaps that means cutting up credit cards, networking for a new job , registering at a local food bank, or selling things on eBay to pay off bills, for example.
• Monitor your progress. As we’ve all experienced recently, events that impact your financial health can happen quickly, so it’s important to regularly review your plan. Are some aspects working better than others? Do changes in interest rates, your monthly expenses, or your hourly wage, for example, mean you should revise your plan?
• Don’t get derailed by setbacks. We’re all human and no matter how tight your plan, you may stray from your goal or something unexpected could happen to derail you. Don’t beat yourself up, but get back on track as soon as possible.

The more detailed you can make your plan, the less powerless you’ll feel over your financial situation.

Whatever your plan to relieve your financial problems, setting and following a monthly budget can help keep you on track and regain your sense of control.

• Include everyday expenses in your budget, such as groceries and the cost of traveling to work, as well as monthly rent, mortgage, and utility bills.
• For items that you pay annually, such as car insurance or property tax, divide them by 12 so you can set aside money each month.
• If possible, try to factor in unexpected expenses, such as a medical co-pay or prescription charge if you fall sick, or the cost of home or car repairs.
• Set up automatic payments wherever possible to help ensure bills are paid on time and you avoid late payments and interest rate hikes.
• Prioritize your spending. If you’re having trouble covering your expenses each month, it can help to prioritize where your money goes first. For example, feeding and housing yourself and your family and keeping the power on are necessities. Paying your credit card isn’t—even if you’re behind on your payments and have debt collection companies harassing you.
• Keep looking for ways to save money. Most of us can find something in our budget that we can eliminate to help make ends meet. Regularly review your budget and look for ways to trim expenses.
• Enlist support from your spouse, partner, or kids. Make sure everyone in your household is pulling in the same direction and understands the financial goals you’re working towards.

Resolving financial problems tends to involve small steps that reap rewards over time. In the current economic climate, it’s unlikely your financial difficulties will disappear overnight. But that doesn’t mean you can’t take steps right away to ease your stress levels and find the energy and peace of mind to better deal with challenges in the long-term.

[Read: Stress Management]

Get moving. Even a little regular exercise can help ease stress, boost your mood and energy, and improve your self-esteem. Aim for 30 minutes on most days, broken up into short 10-minute bursts if that’s easier.

Practice a relaxation technique. Take time to relax each day and give your mind a break from the constant worrying. Meditating , breathing exercises, or other relaxation techniques are excellent ways to relieve stress and restore some balance to your life.

Don’t skimp on sleep. Feeling tired will only increase your stress and negative thought patterns. Finding ways to improve your sleep during this difficult time will help both your mind and body.

Boost your self-esteem. Rightly or wrongly, experiencing financial problems can cause you to feel like a failure and impact your self-esteem. But there are plenty of other, more rewarding ways to improve your sense of self-worth. Even when you’re struggling yourself, helping others by volunteering can increase your confidence and ease stress, anger, and anxiety—not to mention aid a worthy cause. Or you could spend time in nature, learn a new skill, or enjoy the company of people who appreciate you for who you are, rather than for your bank balance.

Eat healthy food. A healthy diet rich in fruit, vegetables, and omega-3s can help support your mood and improve your energy and outlook. And you don’t have to spend a fortune; there are ways to eat well on a budget .

Be grateful for the good things in your life. When you’re plagued by money worries and financial uncertainty , it’s easy to focus all your attention on the negatives. While you don’t have to ignore reality and pretend everything’s fine, you can take a moment to appreciate a close relationship, the beauty of a sunset, or the love of a pet, for example. It can give your mind a break from the constant worrying, help boost your mood, and ease your stress.

Find financial resources

Find  U.S. Government Services and Information  including  How to Get Out of Debt ,  Unemployment Help , and  Getting Help with Living Expenses . Or call 1-844-872-4681. (USA gov)

Get help with debt and housing problems from  Citizens Advice , contact a free debt service at  National Debtline  or  Stepchange , or seek free financial advice from the government’s  Money Advice Service .

Find  Government Services , get free  Financial Counselling  or call the  National Debt Helpline  at 1800 007 007.

Find government services and information for  Managing Debt  and  Benefits .

More Information

• Managing Job Loss and Financial Stress - Helping yourself and your family cope with stress and financial worries following job loss. (University of Hawaii)
• Managing Debt - Steps you can take to deal with debt. (Federal Trade Commission)
• Managing money and budgeting - Tips for creating a family budget. (raisingchildren.net.au)
• Make a Budget - Simple worksheet to help you create a budget. (Federal Trade Commission)
• Money Stress Weighing on Americans’ Health - Details of the 2015 Stress in America: Paying with Our Health survey from the American Psychological Association. (APA)
• Trauma- and Stressor-Related Disorders. (2013). In Diagnostic and Statistical Manual of Mental Disorders . American Psychiatric Association. Link
• Inc, Gallup. “The U.S. Healthcare Cost Crisis.” Gallup.com. Accessed November 16, 2021. Link
• Anderson, Norman B, Cynthia D Belar, Steven J Breckler, Katherine C Nordal, David W Ballard, Lynn F Bufka, Luana Bossolo, Sophie Bethune, Angel Brownawell, and Katelynn Wiggins. Stress in America: Paying with our Health. “AMERICAN PSYCHOLOGICAL ASSOCIATION,” n.d., 23. Link
• Ramsey Solutions. “Money, Marriage, and Communication.” Accessed November 16, 2021. Link
• “At What Costs? Student Loan Debt, Debt Stress, and Racially/Ethnically Diverse College Students’ Perceived Health. – PsycNET.” Accessed November 16, 2021. Link
• Richardson, Thomas, Peter Elliott, and Ronald Roberts. “The Relationship between Personal Unsecured Debt and Mental and Physical Health: A Systematic Review and Meta-Analysis.” Clinical Psychology Review 33, no. 8 (December 1, 2013): 1148–62. Link
• Warth, Jacqueline, Marie-Therese Puth, Judith Tillmann, Johannes Porz, Ulrike Zier, Klaus Weckbecker, and Eva Münster. “Over-Indebtedness and Its Association with Sleep and Sleep Medication Use.” BMC Public Health 19, no. 1 (July 17, 2019): 957. Link
• Saleh, Dalia, Nathalie Camart, Fouad Sbeira, and Lucia Romo. “Can We Learn to Manage Stress? A Randomized Controlled Trial Carried out on University Students.” PLOS ONE 13, no. 9 (September 5, 2018): e0200997. Link
• “Stress, Social Support, and the Buffering Hypothesis. – PsycNET.” Accessed November 15, 2021. Link
• Salmon, P. “Effects of Physical Exercise on Anxiety, Depression, and Sensitivity to Stress: A Unifying Theory.” Clinical Psychology Review 21, no. 1 (February 2001): 33–61. Link
• Toussaint, Loren, Quang Anh Nguyen, Claire Roettger, Kiara Dixon, Martin Offenbächer, Niko Kohls, Jameson Hirsch, and Fuschia Sirois. “Effectiveness of Progressive Muscle Relaxation, Deep Breathing, and Guided Imagery in Promoting Psychological and Physiological States of Relaxation.” Evidence-Based Complementary and Alternative Medicine 2021 (July 3, 2021): e5924040. Link

More in Stress

Coping with the stress of losing a job

How to cope with events in life outside your control

Preventing and dealing with financial exploitation

Quick tips for when you’re short on time

Using close relationships to manage stress and improve well-being

Fill your life with music that reduces daily stress

Tips for overcoming adversity

Stress Management

How to reduce, prevent, and relieve stress

Professional therapy, done online

BetterHelp makes starting therapy easy. Take the assessment and get matched with a professional, licensed therapist.

Help us help others

Millions of readers rely on HelpGuide.org for free, evidence-based resources to understand and navigate mental health challenges. Please donate today to help us save, support, and change lives.

7.3 Methods for Solving Time Value of Money Problems

Learning outcomes.

By the end of this section, you will be able to:

• Explain how future dollar amounts are calculated.
• Explain how present dollar amounts are calculated.
• Describe how discount rates are calculated.
• Describe how growth rates are calculated.
• Illustrate how periods of time for specified growth are calculated.
• Use a financial calculator and Excel to solve TVM problems.

We can determine future value by using any of four methods: (1) mathematical equations, (2) calculators with financial functions, (3) spreadsheets, and (4) FVIF tables. With the advent and wide acceptance and use of financial calculators and spreadsheet software, FVIF (and other such time value of money tables and factors) have become obsolete, and we will not discuss them in this text. Nevertheless, they are often still published in other finance textbooks and are also available on the internet to use if you so choose.

Using Timelines to Organize TVM Information

A useful tool for conceptualizing present value and future value problems is a timeline. A timeline is a visual, linear representation of periods and cash flows over a set amount of time. Each timeline shows today at the left and a desired ending, or future point (maturity date), at the right.

Now, let us take an example of a future value problem that has a time frame of five years. Before we begin to solve for any answers, it would be a good approach to lay out a timeline like that shown in Table 7.1 :

The timeline provides a visual reference for us and puts the problem into perspective.

Now, let’s say that we are interested in knowing what today’s balance of $100 in our saving account, earning 5% annually, will be worth at the end of each of the next five years. Using the future value formula

that we covered earlier, we would arrive at the following values: $105 at the end of year one, $110.25 at the end of year two, $115.76 at the end of year three, $121.55 at the end of year four, and $127.63 at the end of year five.

With the numerical information, the timeline (at a 5% interest or growth rate) would look like Table 7.2 :

Using timelines to lay out TVM problems becomes more and more valuable as problems become more complex. You should get into the habit of using a timeline to set up these problems prior to using the equation, a calculator, or a spreadsheet to help minimize input errors. Now we will move on to the different methods available that will help you solve specific TVM problems. These are the financial calculator and the Excel spreadsheet.

Using a Financial Calculator to Solve TVM Problems

An extremely popular method of solving TVM problems is through the use of a financial calculator. Financial calculators such as the Texas Instruments BAII Plus™ Professional will typically have five keys that represent the critical variables used in most common TVM problems: N , I/Y , PV , FV , and PMT . These represent the following:

These are the only keys on a financial calculator that are necessary to solve TVM problems involving a single payment or lump sum .

Example 1: Future Value of a Single Payment or Lump Sum

Let’s start with a simple example that will provide you with most of the skills needed to perform TVM functions involving a single lump sum payment with a financial calculator.

Suppose that you have $1,000 and that you deposit this in a savings account earning 3% annually for a period of four years. You will naturally be interested in knowing how much money you will have in your account at the end of this four-year time period (assuming you make no other deposits and withdraw no cash).

To answer this question, you will need to work with factors of $1,000, the present value ( PV ); four periods or years, represented by N ; and the 3% interest rate, or I/Y . Make sure that the calculator register information is cleared, or you may end up with numbers from previous uses that will interfere with the solution. The register-clearing process will depend on what type of calculator you are using, but for the TI BA II Plus™ Professional calculator, clearing can be accomplished by pressing the keys 2ND and FV [ CLR TVM ].

Once you have cleared any old data, you can enter the values in the appropriate key areas: 4 for N , 3 for I/Y , and 1000 for PV . Now you have entered enough information to calculate the future value. Continue by pressing the CPT (compute) key, followed by the FV key. The answer you end up with should be displayed as 1,125.51 (see Table 7.3 ).

Important Notes for Using a Calculator and the Cash Flow Sign Convention

Please note that the PV was entered as negative $1,000 (or -$1000). This is because most financial calculators (and spreadsheets) follow something called the cash flow sign convention, which is a way for calculators and spreadsheets to keep the relative direction of the cash flow straight. Positive numbers are used to represent cash inflows, and negative numbers should always be used for cash outflows.

In this example, the $1,000 is an investment that requires a cash outflow. For this reason, -1000 is entered as the present value, as you will be essentially handing this $1,000 to a bank or to someone else to initiate the transaction. Conversely, the future value represents a cash inflow in four years’ time. This is why the calculator generates a positive 1,125.51 as the end result of this calculation.

Had you entered the present value of $1,000 as a positive number, there would have been no real concern, but the ending future value answer would have been returned expressed as a negative number. This would be correct had you borrowed $1,000 today (cash inflow) and agreed to repay $1,125.51 (cash outflow) four years from now. Also, it is important that you do not change the sign of any input value by using the - (minus) key). For example, on the TI BA II Plus™ Professional, you must use the +|- key instead of the minus key. If you enter 1000 and then hit the +|- key, you will get a negative 1,000 amount showing in the calculator display.

An important feature of most financial calculators is that it is possible to change any of the variables in a problem without needing to reenter all of the other data. For example, suppose that we wanted to find out the future value in our bank account if we left the money from our previous example invested for 20 years instead of 4. Before clearing any of the data, simply enter 20 for N and then press the CPT key and then the FV key. After this is done, all other inputs will remain the same, and you will arrive at an answer of $1,806.11.

Think It Through

How to determine future value when other variables are known.

Here’s an example of using a financial calculator to solve a common time value of money problem. You have $2,000 invested in a money market account that is expected to earn 4% annually. What will be the total value in the account after five years?

Follow the recommended financial calculator steps in Table 7.4 .

The result of this future value calculation of the invested money is $2,433.31.

Example 2: Present Value of Lump Sums

Solving for the present value (discounted value) of a lump sum is the exact opposite of solving for a future value. Once again, if we enter a negative value for the FV, then the calculated PV will be a positive amount.

Taking the reverse of what we did in our example of future value above, we can enter -1,125.51 for FV , 3 for I/Y , and 4 for N . Hit the CPT and PV keys in succession, and you should arrive at a displayed answer of 1,000.

An important constant within the time value of money framework is that the present value will always be less than the future value unless the interest rate is negative. It is important to keep this in mind because it can help you spot incorrect answers that may arise from errors with your input.

How to Determine Present Value When Other Variables Are Known

Here is another example of using a financial calculator to solve a common time value of money problem. You have just won a second-prize lottery jackpot that will pay a single total lump sum of $50,000 five years from now. How much value would this have in today’s dollars, assuming a 5% interest rate?

Follow the recommended financial calculator steps in Table 7.5 .

The present value of the lottery jackpot is $39,176.31.

Example 3: Calculating the Number of Periods

There will be times when you will know both the value of the money you have now and how much money you will need to have at some unknown point in the future. If you also know the interest rate your money will be earning for the foreseeable future, then you can solve for N, or the exact amount of time periods that it will take for the present value of your money to grow into the future value that you will require for your eventual use.

Now, suppose that you have $100 today and you would like to know how long it will take for you to be able to purchase a product that costs $133.82.

After making sure your calculator is clear, you will enter 5 for I/Y , -100 for PV , and 133.82 for FV . Now press CPT N , and you will see that it will take 5.97 years for your money to grow to the desired amount of $133.82.

Again, an important thing to note when using a financial calculator to solve TVM problems is that you must enter your numbers according to the cash flow sign convention discussed above. If you do not make either the PV or the FV a negative number (with the other being a positive number), then you will end up getting an error message on the screen instead of the answer to the problem. The reason for this is that if both numbers you enter for the PV and FV are positive, the calculator will operate under the assumption that you are receiving a financial benefit without making any cash outlay as an initial investment. If you get such an error message in your calculations, you can simply press the CE/C key. This will clear the error, and you can reenter your data correctly by changing the sign of either PV or FV (but not both of these, of course).

Determining Periods of Time

Here is an additional example of using a financial calculator to solve a common time value of money problem. You want to be able to contribute $25,000 to your child’s first year of college tuition and related expenses. You currently have $15,000 in a tuition savings account that is earning 6% interest every year. How long will it take for this account grow into the targeted amount of $25,000, assuming no additional deposits or withdrawals will be made?

Table 7.6 shows the steps you will take.

The result of this calculation is a time period of 8.7667 years for the account to reach the targeted amount.

Example 4: Solving for the Interest Rate

Solving for an interest rate is a common TVM problem that can be easily addressed with a financial calculator. Let’s return to our earlier example, but in this case, we know that we have $1,000 at the present time and that we will need to have a total of $1,125.51 four years from now. Let’s also say that the only way we can add to the current value of our savings is through interest income. We will not be able to make any further deposits in addition to our initial $1,000 account balance.

What interest rate should we be sure to get on our savings account in order to have a total savings account value of $1,125.51 four years from now?

Once again, clear the calculator, and then enter 4 for N , -1,000 for PV , and 1,125.51 for FV . Then, press the CPT and I/Y keys and you will find that you need to earn an average 3% interest per year in order to grow your savings balance to the desired amount of $1,125.51. Again, if you end up with an error message, you probably failed to follow the sign convention relating to cash inflow and outflow that we discussed earlier. To correct this, you will need to clear the calculator and reenter the information correctly.

After you believe you are done and have arrived at a final answer, always make sure you give it a quick review. You can ask yourself questions such as “Does this make any sense?” “How does this compare to other answers I have arrived at?” or “Is this logical based on everything I know about the scenario?” Knowing how to go about such a review will require you to understand the concepts you are attempting to apply and what you are trying to make the calculator do. Further, it is critical to understand the relationships among the different inputs and variables of the problem. If you do not fully understand these relationships, you may end up with an incorrect answer. In the end, it is important to realize that any calculator is simply a tool. It will only do what you direct it to do and has no idea what your objective is or what it is that you really wish to accomplish.

Determining Interest or Growth Rate

Here is another example of using a financial calculator to solve a common time value of money problem. Let’s use a similar example to the one we used when calculating periods of time to determine an interest or growth rate. You still want to help your child with their first year of college tuition and related expenses. You also still have a starting amount of $15,000, but you have not yet decided on a savings plan to use.

Instead, the information you now have is that your child is just under 10 years old and will begin college at age 18. For simplicity’s sake, let’s say that you have eight and a half years before you will need to meet your total savings target of $25,000. What rate of interest will you need to grow your saved money from $15,000 to $25,000 in this time period, again with no other deposits or withdrawals?

Follow the steps shown in Table 7.7 .

The result of this calculation is a necessary interest rate of 6.194%.

Using Excel to Solve TVM Problems

Excel spreadsheets can be excellent tools to use when solving time value of money problems. There are dozens of financial functions available in Excel, but a student who can use a few of these functions can solve almost any TVM problem. Special functions that relate to TVM calculations are as follows:

Excel also includes a function called Payment (PMT) that is used in calculations involving multiple payments or deposits (annuities). These will be covered in Time Value of Money II: Equal Multiple Payments .

Future Value (FV)

The Future Value function in Excel is also referred to as FV and can be used to calculate the value of a single lump sum amount carried to any point in the future. The FV function syntax is similar to that of the other four basic time-value functions and has the following inputs (referred to as arguments), similar to the functions listed above:

Lump sum problems do not involve payments, so the value of Pmt in such calculations is 0. Another argument, Type, refers to the timing of a payment and carries a default value of the end of the period, which is the most common timing (as opposed to the beginning of a period). This may be ignored in our current example, which means the default value of the end of the period will be used.

The spreadsheet in Figure 7.3 shows two examples of using the FV function in Excel to calculate the future value of $100 in five years at 5% interest.

In cell E1, the FV function references the values in cells B1 through B4 for each of the arguments. When a user begins to type a function into a spreadsheet, Excel provides helpful information in the form of on-screen tips showing the argument inputs that are required to complete the function. In our spreadsheet example, as the FV formula is being typed into cell E2, a banner showing the arguments necessary to complete the function appears directly below, hovering over cell E3.

Cells E1 and E2 show how the FV function appears in the spreadsheet as it is typed in with the required arguments. Cell E4 shows the calculated answer for cell E1 after hitting the enter key. Once the enter key is pressed, the hint banner hovering over cell E3 will disappear. The second example of the FV function in our example spreadsheet is in cell E6. Here, the actual numerical values are used in the FV function equation rather than cell references. The method in cell E8 is referred to as hard coding . In general, it is preferable to use the cell reference method, as this allows for copying formulas and provides the user with increased flexibility in accounting for changes to input data. This ability to accept cell references in formulas is one of the greatest strengths of Excel as a spreadsheet tool.

Download the spreadsheet file containing key Chapter 7 Excel exhibits.

Determining Future Value When Other Variables Are Known . You have $2,000 invested in a money market account that is expected to earn 4% annually. What will be the total value in the account in five years?

Note: Be sure to follow the sign conventions. In this case, the PV should be entered as a negative value.

Note: In Excel, interest and growth rates must be entered as percentages, not as whole integers. So, 4 percent must be entered as 4% or 0.04—not 4, as you would enter in a financial calculator.

Note: It is always assumed that if not specifically stated, the compounding period of any given interest rate is annual, or based on years.

Note: The Excel command used to calculate future value is as follows:

You may simply type the values for the arguments in the above formula. Another option is to use the Excel insert function option. If you decide on this second method, below are several screenshots of dialog boxes you will encounter and will be required to complete.

This dialog box allows you to either search for a function or select a function that has been used recently. In this example, you can search for FV by typing this in the search box and selecting Go, or you can simply choose FV from the list of most recently used functions (as shown here with the highlighted FV option).

Figure 7.6 shows the completed data input for the variables, referred to here as “function arguments.” Note that cell addresses are used in this example. This allows the spreadsheet to still be useful if you decide to change any of the variables. You may also type values directly into the Function Arguments dialog box, but if you do this and you have to change any of your inputs later, you will have to reenter the new information. Using cell addresses is always a preferable method of entering the function argument data.

Additional notes:

• The Pmt argument or variable can be ignored in this instance, or you can enter a placeholder value of zero. This example shows a blank or ignored entry, but either option may be used in problems such as this where the information is not relevant.
• The Type argument does not apply to this problem. Type refers to the timing of cash flows and is usually used in multiple payment or annuity problems to indicate whether payments or deposits are made at the beginning of periods or at the end. In single lump sum problems, this is not relevant information, and the Type argument box is left empty.
• When you use cell addresses as function argument inputs, the numerical values within the cells are displayed off to the right. This helps you ensure that you are identifying the correct cells in your function. The final answer generated by the function is also displayed for your preliminary review.

Once you are satisfied with the result, hit the OK button, and the dialog box will disappear, with only the final numerical result appearing in the cell where you have set up the function.

The FV of this present value has been calculated as approximately $2,433.31.

Present Value (PV)

We have covered the idea that present value is the opposite of future value. As an example, in the spreadsheet shown in Figure 7.3 , we calculated that the future value of $100 five years from now at a 5% interest rate would be $127.63. By reversing this process, we can safely state that $127.63 received five years from now with a 5% interest (or discount) rate would have a value of just $100 today. Thus, $100 is its present value. In Excel, the PV function is used to determine present value (see Figure 7.7 ).

The formula in cell E1 uses cell references in a similar fashion to our FV example spreadsheet above. Also similar to our earlier example is the hard-coded formula for this calculation, which is shown in cell E6. In both cases, the answers we arrive at using the PV function are identical, but once again, using cell references is preferred over hard coding if possible.

Determining Present Value When Other Variables Are Known

You have just won a second-prize lottery jackpot that will pay a single total lump sum of $50,000 five years from now. You are interested in knowing how much value this would have in today’s dollars, assuming a 5% interest rate.

• If you wish for the present value amount to be positive, the future value you enter here should be a negative value.
• In Excel, interest and growth rates must be entered as percentages, not as whole integers. So, 5 percent must be entered as 5% or 0.05—not 5, as you would enter in a financial calculator.
• It is always assumed that if not specifically stated, the compounding period of any given interest rate is annual, or based on years.
• The Excel command used to calculate present value is as shown here:

As with the FV formula covered in the first tab of this workbook, you may simply type the values for the arguments in the above formula. Another option is to again use the Insert Function option in Excel. Figure 7.8 , Figure 7.9 , and Figure 7.10 provide several screenshots that demonstrate the steps you’ll need to follow if you decide to enter the PV function from the Insert Function menu.

As discussed in the FV function example above, this dialog box allows you to either search for a function or select a function that has been used recently. In this example, you can search for PV by typing this into the search box and selecting Go, or you can simply choose PV from the list of the most recently used functions.

Figure 7.10 shows the completed data input for the function arguments. Note that once again, cell addresses are used in this example. This allows the spreadsheet to still be useful if you decide to change any of the variables. As in the FV function example, you may also type values directly in the Function Arguments dialog box, but if you do this and you have to change any of your input later, you will have to reenter the new information. Remember that using cell addresses is always a preferable method of entering the function argument data.

Again, similar to our FV function example, the Function Arguments dialog box shows values off to the right of the data entry area, including our final answer. The Pmt and Type boxes are again not relevant to this single lump sum example, for reasons we covered in the FV example.

Review your answer. Once you are satisfied with the result, click the OK button, and the dialog box will disappear, with only the final numerical result appearing in the cell where you have set up the function. The PV of this future value has been calculated as approximately $39,176.31.

Periods of Time

The following discussion will show you how to use Excel to determine the amount of time a given present value will need to grow into a specified future value when the interest or growth rate is known.

You want to be able to contribute $25,000 to your child’s first year of college tuition and related expenses. You currently have $15,000 in a tuition savings account that is earning 6% interest every year. How long will it take for this account grow into the targeted amount of $25,000, assuming no additional deposits or withdrawals are made?

• As with our other examples, interest and growth rates must be entered as percentages, not as whole integers. So, 6 percent must be entered as 6% or 0.06—not 6, as you would enter in a financial calculator.
• The present value needs to be entered as a negative value in accordance with the sign convention covered earlier.
• The Excel command used to calculate the amount of time, or number of periods, is this:

As with our FV and PV examples, you may simply type the values of the arguments in the above formula, or we can again use the Insert Function option in Excel. If you do so, you will need to work with the various dialog boxes after you select Insert Function.

As discussed in our previous examples on FV and PV, this menu allows you to either search for a function or select a function that has been used recently. In this example, you can search for NPER by typing this into the search box and selecting Go, or you can simply choose NPER from the list of most recently used functions.

• Once you have highlighted NPER, click the OK button, and a new dialog box will appear for you to enter the necessary details. As in our previous examples, it will look like Figure 7.12 .

Figure 7.13 shows the completed Function Arguments dialog box. Note that once again, we are using cell addresses in this example.

As in the previous function examples, values are shown off to the right of the data input area, and our final answer of approximately 8.77 is displayed at the bottom. Also, once again, the Pmt and Type boxes are not relevant to this single lump sum example.

Review your answer, and once you are satisfied with the result, click the OK button. The dialog box will disappear, with only the final numerical result appearing in the cell where you have set up the function.

The amount of time required for the desired growth to occur is calculated as approximately 8.77 years.

Interest or Growth Rate

You can also use Excel to determine the required growth rate when the present value, future value, and total number of required periods are known.

Let’s discuss a similar example to the one we used to calculate periods of time. You still want to help your child with their first year of college tuition and related expenses, and you still have a starting amount of $15,000, but you have not yet decided which savings plan to use.

Instead, the information you now have is that your child is just under 10 years old and will begin college at age 18. For simplicity’s sake, let’s say that you have eight and a half years until you will need to meet your total savings target of $25,000. What rate of interest will you need to grow your saved money from $15,000 to $25,000 in this time, again with no other deposits or withdrawals?

Note: The present value needs to be entered as a negative value.

Note: The Excel command used to calculate interest or growth rate is as follows:

As with our other TVM function examples, you may simply type the values for the arguments into the above formula. We also again have the same alternative to use the Insert Function option in Excel. If you choose this option, you will again see the Insert Function dialog box after you click the Insert Function button.

Once we complete the input, again using cell addresses for the required argument values, we will see what is shown in Figure 7.16 .

As in our other examples, cell values are shown as numerical values off to the right, and our answer of approximately 0.0619, or 6.19%, is shown at the bottom of the dialog box.

This answer also can be checked from a logic point of view because of the similar example we worked through when calculating periods of time. Our present value and future value are the same as in that example, and our time period is now 8.5 years, which is just under the result we arrived at (8.77 years) in the periods example.

So, if we are now working with a slightly shorter time frame for the savings to grow from $15,000 into $25,000, then we would expect to have a slightly greater growth rate. That is exactly how the answer turns out, as the calculated required interest rate of approximately 6.19% is just slightly greater than the growth rate of 6% used in the previous example. So, based on this, it looks like our answer here passes a simple “sanity check” review.

• 1 The specific financial calculator in these examples is the Texas Instruments BA II Plus™ Professional model, but you can use other financial calculators for these types of calculations.

As an Amazon Associate we earn from qualifying purchases.

This book may not be used in the training of large language models or otherwise be ingested into large language models or generative AI offerings without OpenStax's permission.

Want to cite, share, or modify this book? This book uses the Creative Commons Attribution License and you must attribute OpenStax.

Access for free at https://openstax.org/books/principles-finance/pages/1-why-it-matters

• Authors: Julie Dahlquist, Rainford Knight
• Publisher/website: OpenStax
• Book title: Principles of Finance
• Publication date: Mar 24, 2022
• Location: Houston, Texas
• Book URL: https://openstax.org/books/principles-finance/pages/1-why-it-matters
• Section URL: https://openstax.org/books/principles-finance/pages/7-3-methods-for-solving-time-value-of-money-problems

© Jan 8, 2024 OpenStax. Textbook content produced by OpenStax is licensed under a Creative Commons Attribution License . The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the Creative Commons license and may not be reproduced without the prior and express written consent of Rice University.

• Personal Finance
• Frugal Living
• Cars and Transportation
• Credit Cards
• Debt Management
• Financial News
• Real Estate and Housing
• More in Personal Finance
• Entertainment
• Food and Drink
• Green Living
• Health and Beauty
• More in Frugal Living
• Career Building
• Education & Training
• Entrepreneurship
• Extra Income
• Job Hunting
• More in Career & Income
• Consumer Affairs
• General Tips
• Organization
• Personal Development
• Productivity
• More in Life Hacks
• In The Press

9 Problems You Can't Solve With Money

This page contains affiliate links from which we receive a compensation. Like many publications Wise Bread is supported by affiliate commission from partner companies whose products appear on our site. This may influence which products we write about and the location and order in which products appear. We aren't able to cover every product in the marketplace.

• Travel Rewards Credit Cards
• Cash Back Credit Cards
• 0% Balance Transfer Credit Cards

No matter how limitless your budget and how strong your arm, there are certain times when throwing money at a problem simply won't help. So take a look at the list below and ask yourself: Are you facing a situation whose solution might require thought and effort, as opposed to more bankroll? (See also: Your Money Problems Are Your Own Fault )

1. A Failed Relationship

A lot of relationships founder on the shoals of money issues, but even those can't be healed by throwing money at them — what they need is mostly better communication plus a generous dollop of willingness to compromise. And if the relationship problems aren't related to money, throwing money at it won't help at all.

2. A Mid-Life Crisis

It's a cliche of the mid-life crisis for a 40-something man to buy a red convertible, but it's not a purchase that's going to solve existential angst. Of course there's nothing wrong with buying a red convertible if you want one, and can afford it. It just doesn't solve any problems. (Not even the practical transportation problems that could be solved with a more practical car, really.)

3. Getting in Shape

Buying a gym membership does not improve your fitness. Neither does buying a treadmill, stationary bike, or elliptical machine. Regularly including appropriate aerobic, resistance, and flexibility exercise among your daily activities gets you into shape. (See also: 5 Ways to Turn Your Walk Into a Real Workout )

4. Acquiring Skills and Talents

Getting good at something is largely a matter of practice, and money is no substitute. Of course you can spend money on books, on classes, on workshops, and on tools, and all those things may be of some help, but they're not going to give you skills if you don't put in the time to develop the expertise (and they're certainly not going to give you talent).

5. Becoming Enlightened or Even Just a Better Person

There are always hucksters pretending to be one sort of spiritual guide or another, willing to take your money and show you the true path. There are also people ready to suggest that donating money to worthy causes makes you a better person. You can be confident that neither of those things is true.

6. Natural Disasters

It's very reasonable to spend money in advance of a natural disaster, to make yourself more prepared. A well-supplied pantry can really help you through something like a blizzard or a flood or an earthquake. The right tools and right supplies can turn a disaster into an inconvenience — or even an adventure. Money can also help some after a disaster is over. But no amount of money will turn back a lava flow, or get a commercial jet to fly through a volcanic dust cloud. (See also: 5 Emergency Situations You Must Prepare For )

7. Being Blackmailed

You know giving in to a blackmailer's demands just lead to more demands, right? You've seen this movie.

8. Wanting the Impossible

I'd like to spend the next 2000 years learning to be the world's greatest musician, greatest swordsman, and most eloquent Esperanto speaker, and then travel through time to play, fence, and argue with everyone history suggests might have been better at those things than I. Throwing money at that problem will not solve it — nor will it produce world peace, end hunger (or death, or disease), let me travel faster than the speed of light, or meet friendly aliens from other worlds.

9. Being a Happy Person

Money can buy things that you want, and money can certainly solve some problems — and if those problems are making you unhappy, then in that sense money can buy happiness. But research shows that happiness comes from other things . Things like doing good work and having the respect of your peers — things you can't buy with money.

The Three Questions to Ask

So, when is throwing money at a problem the right choice? I tend to ask myself these three questions before I decide to throw money at a problem.

1. Is the Cost Bounded?

That is, can you know up front how much money you're talking about? Is it a one-time expense, or would you be taking on a new recurring monthly expense?

It's easy to make the necessary cost-benefit analysis of a single payment. You have the information you need to decide if the cost is worth it — and if you can afford it.

If you're looking at solving a problem by signing up for a new recurring monthly expense, you're potentially talking about a lot of money. You're also making the analysis a lot tougher.

None of which is to say that recurring monthly expenses are never the right answer. Everybody has recurring expenses, and they're a perfectly reasonable way to cover the basic costs of living. But when you're talking about throwing money at a problem, you're usually talking about something less basic (and less long-term) than, for example, solving the problem of being homeless by renting an apartment.

The "being a happy person" problem fails this test, because even if this or that purchase would make you happy for a moment, no purchase will make you happy forever. The "being blackmailed" problem fails it as well.

2. Will the Money Solve the Problem?

Arguably, this ought to be the first question. If money won't solve the problem, then there's no point in throwing it — or even spending it. But in my experience, this question is so often hard to answer, while the other is so often easy, I find it makes sense to start with the other. If you answer that one to your satisfaction, then you come to this one.

What makes it hard to answer is getting a clear understanding of the problem.

For example, your car has broken down and you can't get to work. That's a problem where throwing money at it — paying to have your car repaired — may be reasonable. But don't stop your analysis there. To come to the right decision, you need to be sure you're getting to the fundamental problem. In this case, the real problem is that you don't have reliable transportation.

That's important, because making a needed repair does not always turn a car into reliable transportation. If this is just the most urgent of a list of needed repairs, maybe you need a different solution — a new car, or a good bicycle, or a bus pass, or an apartment closer to where you work, or a job closer to where you live.

Most of the other problems listed above — terminal illness, failed relationship, midlife crisis — fail this question.

That result is often heartbreaking, but it doesn't change the fact that whole categories of problems — medical problems, personal problems, political problems, social problems — often cannot be solved with money.

Save your money for the problems money can solve. Solve those other kinds of problems (if they can be solved) on their own terms.

3. Is There a Good Chance You'll Get the Money Back?

This is really a secondary question, after evaluating the cost of solving a problem with money. If a problem is clearly solvable, and the solution is easily affordable, you're probably not even thinking about it in these terms. (If the problem is that you're out of flour, and there's a grocery store a few blocks away that will sell you nearly unlimited quantities for less than a dollar a pound, then buying a bag of flour doesn't really rise to the level of throwing money at a problem.)

The third question becomes important when the cost of solving a problem with money is so large as to be a major factor in your budget — or especially if it will significantly impact your wealth.

Probably the most common circumstance is when you've sent a check, but it has gone astray. If you're dealing with a reputable counterparty, especially one with which you have an ongoing business relationship, it's usually fine to just pay again. Eventually one of two things will happen. Your first check will probably turn up and whoever has gotten paid twice will refund the extra payment (or credit it to your next bill). Or, if it never turns up, the money will never have left your bank account. (This is a good reason to pay by check. If an electronic debit or money order goes astray, you'll have to involve your bank in tracking the money down.)

Another common situation where there's a good chance you'll get your money back is when you have insurance. If your house burns down, your insurance company will probably pay necessary temporary housing expenses. If you're sick, your health insurance will probably pay necessary medical expenses.

Many times while traveling on business, I threw money at a problem, confident that my employer would reimburse me for those expenses along with my other business travel expenses — a legitimate move, because the money was solving a problem for my employer as much as it was solving a problem for me.

So sometimes, throwing money at a problem is the right move. But asking yourself these three question beforehand is always the right move.

How do you decide if money is the answer to a problem? Please share in comments!

Nice article, it really made me reflect on what woes I do not have...versus focusing on what else I could acheive. Sometimes avoiding pain > attaining pleasure.

My only concern was the point about Becoming a Better Person. I think that donating CAN be a way to fulfill oneself, but not if you're just donating to organizations that remove you from the cause. In our privileged society, many of us don't know 'poor people' or those in need--not due to financial irresponsibility, but actual need--so giving someone like that money, after probably searching them out, can be very fulfilling. (Heck, even if they were financially irresponsible, its still an opportunity to help someone in need).

A quote from Muslim scripture, a saying of the Prophet Mohamed goes: "The giving hand (in charity or aid), is better than the receiving hand."

...this basically means that although not fulfilling one's own responsibility is a negative, giving and helping those in need is an opportunity for a great positive.

Obviously, I hold this opinion dear, and in my own life have tried to seek out opportunities to help people, who otherwise may not be known as 'needing help.' I don't feel it makes me enlightened, but I know it definitely feels fulfilling, as opposed to keeping up withe Jones' ...and no one can ever keep up!

I much enjoyed this kind of article - it made me reflect to how I spend my own money. I digress on throwing money for solving a medical problem - as a physician myself I have witnessed firsthand the difference money AND education can do regarding the same disease with the same correctly prescribed treatment. Many excellent drugs and vaccines and devices we use today were created by people throwing money - lots of it- to solve a certain problem. Of course, I've seen the opposite too: rich patients throwing money for tests they don't really need when their fortunes are causing an imbalance in their lifestyle, e.g. affording tobacco or steaks every day.

I have thought about having more money for all of those scenarios. Number 6, I have spent a great deal thinking about. When there were all of those tornadoes in the mid west two years ago, I called my home owner's insurance policy and increased my amount.

The author is making a hidden assumption here, that is an assumption nonetheless: that wanting world peace or ending hunger is wanting the impossible. That's not scientifically proven. The only way to create the future reality that are hearts want so badly is to believe that ending war and ending hunger are not only possible, but the most important dream to keep alive.

Just to comment on number 2,, ^^ An existential crisis or angst would never the problem for a true muslim regardless of age because we have definite clear about our existence itself :)))))

• Most Popular

• What is a Budget?
• Budgeting Guidelines
• Budget Calculator
• How to Pay Off Debt Faster
• How Much Debt is Too Much?
• Money Makeover
• More Smart Choices
• Smartest Things for Finances
• Why You Should Save Money
• How to Save Money
• Where to Find Money to Save
• How to Save an Emergency Fund
• Ways to Save for a Goal
• Tips to Save Money
• How to Save Money on Your Home Energy Bill
• Saving for Education
• Saving for a Home
• Impulse Spending
• How to Save on Groceries
• Save Money on Clothing
• Alternative Gift Ideas
• 8 Week Christmas Plan
• 4 Week Christmas Plan
• Shopping in the U.S.
• Buying a Time Share
• Traveling on a Small Budget
• Teaching Your Kids About How to Manage Money
• Stretching Your Back to School Budget
• Practical Tips for Post-Secondary Students
• Credit Reporting in Canada
• How Credit Scores are Calculated
• Establishing Credit
• How to Get Your Credit Report & Credit Score
• Maintaining Credit
• How to Get a Super Credit Score
• How to Fix Your Credit
• Protecting Against New Identity Theft
• Joint Debts
• Money Management Basics
• Budgeting Tips
• Expense Tracker
• Income & Expense Tool
• Solving Debt Problems
• Dealing with Creditors
• Webinar Schedule & Details
• Library Workshops
• Employer Resources
• Mortgage Broker Resources
• For Teachers
• Calculators
• Our Services
• Accreditations

You are here

How to overcome 8 sources of financial problems & difficulties.

Financial problems and challenges happen to everyone at some point, and the stress and worry can get to you. However, realizing that there is almost always a way out can help you not feel so depressed. You may be able to find the way out yourself, or you may need someone else's perspective to help you find a solution. Below we’ll show you  how to overcome financial problems and difficulties  and ease your stress. But, one size does not fit all. If your situation is beyond the general help provided here, we’ll also let you know who you can go to for more in-depth help.

1. Identify the Underlying Problem That's Causing the Difficulties

The first step to overcoming financial problems is to identify the underlying issue that’s causing the financial difficulties. Financial problems are usually a symptom of a bigger issue. To come up with solutions that work in the long run, take the time to identify the real source of your financial troubles. Here are some common things to think about: 

Your problem may not be listed above or it may be more complex. However, the concept of identifying a specific problem is important because it is more likely to result in a lasting solution. Just like with a leaky faucet; placing a bucket below is temporary. Fix the tap and the leak will stop. Focus on solving the problem that’s causing your money troubles, rather than dwelling on your stress.

2. Create a Budget - Spend Money in a Way That Helps Solve the Problem 

One of the best weapons for combating financial problems is a budget. A budget is a monthly spending plan for your money. Creating a budget is like turning the lights on to find your way around a dark room. You no longer need to wander in the dark; banging your shins, tripping over the furniture, and stepping on the dog. Instead, with the lights on, you can see what’s going on and prevent problems before they happen. A budget works much the same way; it guides your spending decisions so that you're spending money on what's really important to you. In this case, you'll  spend your money in a way that helps solve your financial problem .

Click here to learn more about creating a budget , or try out our  budget calculator that guides you through the budgeting process , points out common problems, and offers suggestions to improve your budget.

Track Your Expenses to Build a Budget That Works

As you create your budget, it’s important that your expenses aren’t just guesses – they need to reflect reality. You may want to ​ track your expenses  for at least a couple of weeks (a month is best) to objectively see where you are spending your money and how much you’re spending. Although you may think you know where your money is going, when most people tally up all their purchases for a month, they are usually quite surprised to notice that their spending doesn’t always match up with what they thought their priorities were.

3. Determine Financial Priorities to Guide Your Spending Choices

4. Identify Small Steps You Can Take to Address the Problem & Achieve Your Goals

Look here to get ideas of where find some extra money each month , get the card paid off, and then permanently have $50 extra to use in your budget every month. However, if by the time you reach this goal you’ve learned to get by without this $50, then use it to accelerate the payment of another debt each month, and get all of your debts paid off more quickly. 

Look for Things You Can Do, Even Temporarily, to Improve Your Situation

Here are more ideas or steps you can consider taking to improve your financial situation and alleviate difficulties:

• As you look through your budget, ask yourself: Do I want this or do I need it? Will spending this money get me closer to my financial goals or further away? Can I live without it?  Learn more about separating needs from wants .
• Do you use credit cards for impulse purchases? This can contribute to a cycle of ongoing financial difficulty and  add as much as 50% to everything you purchase .  Learn how to reduce or change impulsive spending habits .
• Ask yourself if you can downsize anything in your budget or switch to a less expensive option. If vehicle costs are straining your budget, can you downsize your vehicle, get rid of one vehicle (the average person spends over $9,000 per year to own and operate a vehicle), take transit (80% cheaper than owning a vehicle), or car pool? If your rent, mortgage, or home upkeep is bleeding you dry, can you downsize to something more affordable, rent out your basement, rent a room in your house, rent out the storage space in your garage, or can you take in a student for some extra income?
• If debt is causing you financial problems, here are a lot of ways to reduce your debt or here are a dozen of the most effective ways to get out of debt .

• Can you take on a side job or create another source of income with something you know how to do well?
• Look outside the box, ask yourself tough questions, invite a trusted friend to have a look at your budget and make suggestions, or  sit down with a Credit Counsellor and get their suggestions .
• Research viable options that will move you towards your goals. A  consolidation loan ,  speaking with a Credit Counsellor , a  Debt Management Program , or some other option may be a possibility.

While doing any of these can be an unappealing thought, don’t just dismiss them because they’ll move you out of your comfort zone. Keep thinking about them and give them some consideration. Come back to these ideas from time to time to see if you can come up with a new angle on decreasing your expenses or increasing your income that might just work for you. Remember, you’re trying to get through a tough a time; you don’t need to do this forever, just to get back on track. If you’re really struggling, an  experienced Credit Counsellor can be a great, free source of suggestions .

5. Develop Your Plan to Overcome Financial Problems for Good

Once you’ve come up with some ideas for how to begin tackling your financial problems and difficulties, you can  put together a realistic plan to accomplish your goals . Some goals will have a timeline of a few months; others will need a longer timeline, like 24 - 36 months. Write your goals down, but also write down where you’re at now in relation to each goal. For example, if one of your goals is to pay off a $4,000 debt, make sure to write down the current debt balance and your future goal of paying this down to $0. You’ll want to include in your plan the amount of money you’re going to pay on this debt every month so that you can pay it off within your desired time frame. For more  help on setting goals, have a look at this . Here are also some  tips on setting financial goals with your spouse .

If you’re really feeling overwhelmed and stressed by your situation, you can also  reach out to a non-profit credit counselling agency for help . They have professionally trained Credit & Debt Counsellors who can review your situation with you, help you put together a realistic budget, and help you come up with a plan to solve your current challenges and get your finances back on track. Their help is usually free and is always confidential.

6. Review How Things are Going

The last step takes place once you are a few months into working on your plan. Every once-in-a-while, take a few minutes to review how things are going. Is your plan working? Are you making progress toward your goals? If not, you’ll need to take a closer look to figure out why not and adjust your plan. Your plan needs to be realistic, or it’s not going to work. It should also contain some things you weren’t doing before you put the plan in place.

If you keep doing what you were doing before, then you’ll continue to get the same result  as before – problems.  You’ve got to do something different to get a different outcome.

As you follow your plan and see improvements in your situation, be open to the possibility of fine-tuning the plan. Once you start making some progress, you may find you’re doing better than you thought, or you may come up with some new insights. Improving your plan so that you accomplish your goals more quickly is good as long as your budget can afford the changes and everyone who relies on your budget is okay with the more aggressive approach.

Preventing Future Financial Challenges

Unexpected financial challenges are bound to arise in the future - in fact, research shows that  6 in 10 Canadians will experience major life events that will challenge their prior financial plans . The key to tackling these challenges is to be flexible. Review your budget occasionally and make necessary changes.  Build up savings so that you can handle unanticipated expenses  without going into debt and putting yourself in a difficult situation.

Overcoming financial problems and difficulties isn’t easy, but by setting some clear priorities for yourself, identifying ways to achieve these goals, and persevering with your plan, you can overcome the challenges and at the same time, put an end to the financial stress.

• Online Workshop:  How to Resolve Relationship & Marriage Money Problems & Issues
• How to Protect Yourself from a Financial Emergency
• Does Being Organized with Your Money Really Matter?

<< Back to the main Blog page

• Add new comment

vivienne replied on Mon, 12/10/2018 - 4:59pm Permalink

how to overcome 8 types of financial problems

sagar pal replied on Tue, 05/28/2019 - 11:43pm Permalink

MyMoneyCoach Team replied on Wed, 05/29/2019 - 8:51am Permalink

Where to get help

Bandela Pratap replied on Thu, 03/05/2020 - 7:10am Permalink

Financial problems

MyMoneyCoach Team replied on Thu, 03/05/2020 - 8:40am Permalink

Finding help

Pushkaraj Sawant replied on Fri, 09/04/2020 - 7:21am Permalink

More More Money Problem

MyMoneyCoach Team replied on Fri, 09/25/2020 - 9:40am Permalink

You should speak with a credit counsellor

Diganta Gohain replied on Sat, 09/05/2020 - 8:43am Permalink

Drastic financial problems

MyMoneyCoach Team replied on Fri, 09/25/2020 - 9:43am Permalink

Two places to look for help

Lanie Won replied on Wed, 05/04/2022 - 7:35am Permalink

Nina replied on Sat, 07/08/2023 - 10:42am Permalink

68 years old with little money for the golden years

MyMoneyCoach Team replied on Mon, 07/10/2023 - 2:58pm Permalink

You should speak with a financial planner

• PRO Courses Guides New Tech Help Pro Expert Videos About wikiHow Pro Upgrade Sign In
• EDIT Edit this Article
• EXPLORE Tech Help Pro About Us Random Article Quizzes Request a New Article Community Dashboard This Or That Game Popular Categories Arts and Entertainment Artwork Books Movies Computers and Electronics Computers Phone Skills Technology Hacks Health Men's Health Mental Health Women's Health Relationships Dating Love Relationship Issues Hobbies and Crafts Crafts Drawing Games Education & Communication Communication Skills Personal Development Studying Personal Care and Style Fashion Hair Care Personal Hygiene Youth Personal Care School Stuff Dating All Categories Arts and Entertainment Finance and Business Home and Garden Relationship Quizzes Cars & Other Vehicles Food and Entertaining Personal Care and Style Sports and Fitness Computers and Electronics Health Pets and Animals Travel Education & Communication Hobbies and Crafts Philosophy and Religion Work World Family Life Holidays and Traditions Relationships Youth
• Browse Articles
• Learn Something New
• Quizzes Hot
• This Or That Game
• Train Your Brain
• Explore More
• Support wikiHow
• About wikiHow
• Log in / Sign up
• Education and Communications
• Personal Development
• Problem Solving

How to Solve a Problem

Last Updated: April 3, 2023 Fact Checked

This article was co-authored by Rachel Clissold . Rachel Clissold is a Life Coach and Consultant in Sydney, Australia. With over six years of coaching experience and over 17 years of corporate training, Rachel specializes in helping business leaders move through internal roadblocks, gain more freedom and clarity, and optimize their company’s efficiency and productivity. Rachel uses a wide range of techniques including coaching, intuitive guidance, neuro-linguistic programming, and holistic biohacking to help clients overcome fear, break through limitations, and bring their epic visions to life. Rachel is an acclaimed Reiki Master Practitioner, Qualified practitioner in NLP, EFT, Hypnosis & Past Life Regression. She has created events with up to 500 people around Australia, United Kingdom, Bali, and Costa Rica. There are 12 references cited in this article, which can be found at the bottom of the page. This article has been fact-checked, ensuring the accuracy of any cited facts and confirming the authority of its sources. This article has been viewed 1,312,742 times.

How you deal with challenges will often determine your success and happiness. If you’re stuck on how to solve a problem, try defining it and breaking it into smaller pieces. Choose whether to approach the problem logically or whether you should think about how the outcome might make you feel. Find ways to creatively approach your problems by working with other people and approaching the problem from a different perspective.

Approaching the Problem

• For example, if your room is constantly messy, the problem might not be that you’re a messy person. It might be that you lack containers or places to put your items in an organized way.
• Try to be as clear and thorough as possible when defining the problem. If it is a personal issue, be honest with yourself as to the causes of the problem. If it is a logistics problem, determine exactly where and when the problem occurs.
• Determine whether the problem is real or self-created. Do you need to solve this problem or is this about something you want? Putting things in perspective can help you navigate the problem-solving process.

• For example, you might have several problems to solve and need to decide which ones to tackle first. Solving one problem may ease tension or take stress off of another problem.
• Once you make a decision, don’t doubt yourself. Be willing to look forward from that point on without wondering what would have happened had you chosen something else.

• For example, if you need to turn in many assignments to pass a class, focus on how many you have to do and approach them one by one.
• Try to combine and solve problems together whenever possible. For example, if you're running out of time to study, try listening to a recorded lecture while walking to class or flip through note cards as you're waiting for dinner.

• For example, if you’re trying to pass a cumulative test, figure out what you already know and what you need to study for. Review everything you already know, then start learning more information from your notes, textbook, or other resources that may help you.

• Pay attention to know these scenarios make you feel.

• For example, if you have a deadline, you may skip cooking dinner or going to the gym so that you can give that time to your project.
• Cut down on unnecessary tasks whenever possible. For example, you might get your groceries delivered to you to save on shopping time. You can spend that time instead on other tasks.

Taking a Creative Approach

• If you’re making a complex decision, write down your alternatives. This way, you won’t forget any options and will be able to cross off any that aren’t plausible.
• For example, you might be hungry and need something to eat. Think about whether you want to cook food, get fast food, order takeout, or sit down at a restaurant.

• Problems like accepting the job across the country that offers good pay but takes you away from your family may require different ways of approach. Consider the logical solution, but also consider your thoughts, feelings, and the way the decision affects others.

• For example, if you’re buying a home and not sure how to make your final decision, talk to other homeowners about their thoughts or regrets about buying a home.

• For example, if you’re having financial difficulties, notice how your efforts are affecting the money coming in and the money you’re spending. If keeping a budget helps, keep with it. If using cash exclusively is a headache, try something else.
• Keep a journal where you record your progress, successes, and challenges. You can look at this for motivation when you are feeling discouraged.

Managing Your Emotions While Confronting Difficulties

• The first step is often the scariest. Try doing something small to start. For example, if you're trying to become more active, start going for daily walks.

• For example, if you’re overwhelmed by having a long to-do list, maybe the problems isn’t the list, but not saying “no” to things you can’t do.
• If you're feeling stressed, angry, or overwhelmed, you may be burned out. Make a list of things that cause stress or frustration. Try to cut down on these in the future. If you start feeling overwhelmed again, it may be a sign that you need to cut back.

• Find a therapist by calling your local mental health clinic or your insurance provider. You can also get a recommendation from a physician or friend.

Expert Q&A

• If you start feeling overwhelmed or frustrated, take a breather. Realize that every problem has a solution, but sometimes you're so wrapped up in it that you can't see anything but the problem. Thanks Helpful 1 Not Helpful 0
• Don't turn away from your problems. It will come back sooner or later and it will be more difficult to solve. Common sense can help to reduce the size of the problem. Thanks Helpful 1 Not Helpful 0

Tips from our Readers

• Just take it day by day and write down your plans to form a routine that works best for you. Even if you don't get everything done, just doing what you can for the day is enough.
• Turn the above steps into questions, then answer them. Make your goal actionable by detailing exactly how you'll attempt to achieve it.
• Talk to people you trust and who you believe can help. Be open and just tell them the truth about what's going on.

You Might Also Like

• ↑ https://hbr.org/2017/06/how-you-define-the-problem-determines-whether-you-solve-it
• ↑ https://www.cuesta.edu/student/resources/ssc/study_guides/critical_thinking/106_think_decisions.html
• ↑ https://au.reachout.com/articles/a-step-by-step-guide-to-problem-solving
• ↑ Rachel Clissold. Certified Life Coach. Expert Interview. 26 August 2020.
• ↑ https://serc.carleton.edu/geoethics/Decision-Making
• ↑ https://www.psychologytoday.com/blog/positive-psychology-in-the-classroom/201303/visualize-the-good-and-the-bad
• ↑ https://www.britannica.com/topic/operations-research/Resource-allocation
• ↑ https://www.niu.edu/citl/resources/guides/instructional-guide/brainstorming.shtml
• ↑ https://www.healthywa.wa.gov.au/Articles/N_R/Problem-solving
• ↑ https://www.collegetransfer.net/Home/ChangeSwitchTransfer/I-want-to/Earn-My-College-Degree/Overcoming-Obstacles
• ↑ https://psychcentral.com/lib/5-ways-to-solve-all-your-problems/
• ↑ https://www.apa.org/topics/psychotherapy/understanding

About This Article

To solve a problem, start by brainstorming and writing down any solutions you can think of. Then, go through your list of solutions and cross off any that aren't plausible. Once you know what realistic options you have, choose one of them that makes the most sense for your situation. If the solution is long or complex, try breaking it up into smaller, more manageable steps so you don't get overwhelmed. Then, focus on one step at a time until you've solved your problem. To learn how to manage your emotions when you're solving a particularly difficult problem, scroll down. Did this summary help you? Yes No

• Send fan mail to authors

Reader Success Stories

Jul 16, 2016

Did this article help you?

Rhonda Bienes

Sep 8, 2018

Oct 26, 2017

Dec 12, 2017

Sep 27, 2017

Featured Articles

Trending Articles

Watch Articles

• Terms of Use
• Privacy Policy
• Do Not Sell or Share My Info
• Not Selling Info

wikiHow Tech Help Pro:

Level up your tech skills and stay ahead of the curve

• school Campus Bookshelves
• menu_book Bookshelves
• perm_media Learning Objects
• login Login
• how_to_reg Request Instructor Account
• hub Instructor Commons

Margin Size

• Download Page (PDF)
• Download Full Book (PDF)
• Periodic Table
• Physics Constants
• Scientific Calculator
• Reference & Cite
• Tools expand_more
• Readability

selected template will load here

This action is not available.

7.4: Methods for Solving Time Value of Money Problems

• Last updated
• Save as PDF
• Page ID 94629

\( \newcommand{\vecs}[1]{\overset { \scriptstyle \rightharpoonup} {\mathbf{#1}} } \)

\( \newcommand{\vecd}[1]{\overset{-\!-\!\rightharpoonup}{\vphantom{a}\smash {#1}}} \)

\( \newcommand{\id}{\mathrm{id}}\) \( \newcommand{\Span}{\mathrm{span}}\)

( \newcommand{\kernel}{\mathrm{null}\,}\) \( \newcommand{\range}{\mathrm{range}\,}\)

\( \newcommand{\RealPart}{\mathrm{Re}}\) \( \newcommand{\ImaginaryPart}{\mathrm{Im}}\)

\( \newcommand{\Argument}{\mathrm{Arg}}\) \( \newcommand{\norm}[1]{\| #1 \|}\)

\( \newcommand{\inner}[2]{\langle #1, #2 \rangle}\)

\( \newcommand{\Span}{\mathrm{span}}\)

\( \newcommand{\id}{\mathrm{id}}\)

\( \newcommand{\kernel}{\mathrm{null}\,}\)

\( \newcommand{\range}{\mathrm{range}\,}\)

\( \newcommand{\RealPart}{\mathrm{Re}}\)

\( \newcommand{\ImaginaryPart}{\mathrm{Im}}\)

\( \newcommand{\Argument}{\mathrm{Arg}}\)

\( \newcommand{\norm}[1]{\| #1 \|}\)

\( \newcommand{\Span}{\mathrm{span}}\) \( \newcommand{\AA}{\unicode[.8,0]{x212B}}\)

\( \newcommand{\vectorA}[1]{\vec{#1}}      % arrow\)

\( \newcommand{\vectorAt}[1]{\vec{\text{#1}}}      % arrow\)

\( \newcommand{\vectorB}[1]{\overset { \scriptstyle \rightharpoonup} {\mathbf{#1}} } \)

\( \newcommand{\vectorC}[1]{\textbf{#1}} \)

\( \newcommand{\vectorD}[1]{\overrightarrow{#1}} \)

\( \newcommand{\vectorDt}[1]{\overrightarrow{\text{#1}}} \)

\( \newcommand{\vectE}[1]{\overset{-\!-\!\rightharpoonup}{\vphantom{a}\smash{\mathbf {#1}}}} \)

Learning Objectives

By the end of this section, you will be able to:

• Explain how future dollar amounts are calculated.
• Explain how present dollar amounts are calculated.
• Describe how discount rates are calculated.
• Describe how growth rates are calculated.
• Illustrate how periods of time for specified growth are calculated.
• Use a financial calculator and Excel to solve TVM problems.

We can determine future value by using any of four methods: (1) mathematical equations, (2) calculators with financial functions, (3) spreadsheets, and (4) FVIF tables. With the advent and wide acceptance and use of financial calculators and spreadsheet software, FVIF (and other such time value of money tables and factors) have become obsolete, and we will not discuss them in this text. Nevertheless, they are often still published in other finance textbooks and are also available on the internet to use if you so choose.

Using Timelines to Organize TVM Information

A useful tool for conceptualizing present value and future value problems is a timeline. A timeline is a visual, linear representation of periods and cash flows over a set amount of time. Each timeline shows today at the left and a desired ending, or future point (maturity date), at the right.

Now, let us take an example of a future value problem that has a time frame of five years. Before we begin to solve for any answers, it would be a good approach to lay out a timeline like that shown in Table 7.1:

The timeline provides a visual reference for us and puts the problem into perspective.

Now, let’s say that we are interested in knowing what today’s balance of $100 in our saving account, earning 5% annually, will be worth at the end of each of the next five years. Using the future value formula

that we covered earlier, we would arrive at the following values: $105 at the end of year one, $110.25 at the end of year two, $115.76 at the end of year three, $121.55 at the end of year four, and $127.63 at the end of year five.

With the numerical information, the timeline (at a 5% interest or growth rate) would look like Table 7.2:

Using timelines to lay out TVM problems becomes more and more valuable as problems become more complex. You should get into the habit of using a timeline to set up these problems prior to using the equation, a calculator, or a spreadsheet to help minimize input errors. Now we will move on to the different methods available that will help you solve specific TVM problems. These are the financial calculator and the Excel spreadsheet.

Using a Financial Calculator to Solve TVM Problems

An extremely popular method of solving TVM problems is through the use of a financial calculator. Financial calculators such as the Texas Instruments BAII Plus™ Professional will typically have five keys that represent the critical variables used in most common TVM problems: N , I/Y , PV , FV , and PMT . These represent the following:

These are the only keys on a financial calculator that are necessary to solve TVM problems involving a single payment or lump sum .

Example 1: Future Value of a Single Payment or Lump Sum

Let’s start with a simple example that will provide you with most of the skills needed to perform TVM functions involving a single lump sum payment with a financial calculator.

Suppose that you have $1,000 and that you deposit this in a savings account earning 3% annually for a period of four years. You will naturally be interested in knowing how much money you will have in your account at the end of this four-year time period (assuming you make no other deposits and withdraw no cash).

To answer this question, you will need to work with factors of $1,000, the present value ( PV ); four periods or years, represented by N ; and the 3% interest rate, or I/Y . Make sure that the calculator register information is cleared, or you may end up with numbers from previous uses that will interfere with the solution. The register-clearing process will depend on what type of calculator you are using, but for the TI BA II Plus™ Professional calculator, clearing can be accomplished by pressing the keys 2ND and FV [ CLR TVM ].

Once you have cleared any old data, you can enter the values in the appropriate key areas: 4 for N , 3 for I/Y , and 1000 for PV . Now you have entered enough information to calculate the future value. Continue by pressing the CPT (compute) key, followed by the FV key. The answer you end up with should be displayed as 1,125.51 (see Table 7.3).

Important Notes for Using a Calculator and the Cash Flow Sign Convention

Please note that the PV was entered as negative $1,000 (or -$1000). This is because most financial calculators (and spreadsheets) follow something called the cash flow sign convention, which is a way for calculators and spreadsheets to keep the relative direction of the cash flow straight. Positive numbers are used to represent cash inflows, and negative numbers should always be used for cash outflows.

In this example, the $1,000 is an investment that requires a cash outflow. For this reason, -1000 is entered as the present value, as you will be essentially handing this $1,000 to a bank or to someone else to initiate the transaction. Conversely, the future value represents a cash inflow in four years’ time. This is why the calculator generates a positive 1,125.51 as the end result of this calculation.

Had you entered the present value of $1,000 as a positive number, there would have been no real concern, but the ending future value answer would have been returned expressed as a negative number. This would be correct had you borrowed $1,000 today (cash inflow) and agreed to repay $1,125.51 (cash outflow) four years from now. Also, it is important that you do not change the sign of any input value by using the - (minus) key). For example, on the TI BA II Plus™ Professional, you must use the +|- key instead of the minus key. If you enter 1000 and then hit the +|- key, you will get a negative 1,000 amount showing in the calculator display.

An important feature of most financial calculators is that it is possible to change any of the variables in a problem without needing to reenter all of the other data. For example, suppose that we wanted to find out the future value in our bank account if we left the money from our previous example invested for 20 years instead of 4. Before clearing any of the data, simply enter 20 for N and then press the CPT key and then the FV key. After this is done, all other inputs will remain the same, and you will arrive at an answer of $1,806.11.

Think It Through

How to determine future value when other variables are known.

Here’s an example of using a financial calculator to solve a common time value of money problem. You have $2,000 invested in a money market account that is expected to earn 4% annually. What will be the total value in the account after five years?

Follow the recommended financial calculator steps in Table 7.4.

The result of this future value calculation of the invested money is $2,433.31.

Example 2: Present Value of Lump Sums

Solving for the present value (discounted value) of a lump sum is the exact opposite of solving for a future value. Once again, if we enter a negative value for the FV, then the calculated PV will be a positive amount.

Taking the reverse of what we did in our example of future value above, we can enter -1,125.51 for FV , 3 for I/Y , and 4 for N . Hit the CPT and PV keys in succession, and you should arrive at a displayed answer of 1,000.

An important constant within the time value of money framework is that the present value will always be less than the future value unless the interest rate is negative. It is important to keep this in mind because it can help you spot incorrect answers that may arise from errors with your input.

How to Determine Present Value When Other Variables Are Known

Here is another example of using a financial calculator to solve a common time value of money problem. You have just won a second-prize lottery jackpot that will pay a single total lump sum of $50,000 five years from now. How much value would this have in today’s dollars, assuming a 5% interest rate?

Follow the recommended financial calculator steps in Table 7.5.

The present value of the lottery jackpot is $39,176.31.

Example 3: Calculating the Number of Periods

There will be times when you will know both the value of the money you have now and how much money you will need to have at some unknown point in the future. If you also know the interest rate your money will be earning for the foreseeable future, then you can solve for N, or the exact amount of time periods that it will take for the present value of your money to grow into the future value that you will require for your eventual use.

Now, suppose that you have $100 today and you would like to know how long it will take for you to be able to purchase a product that costs $133.82.

After making sure your calculator is clear, you will enter 5 for I/Y , -100 for PV , and 133.82 for FV . Now press CPT N , and you will see that it will take 5.97 years for your money to grow to the desired amount of $133.82.

Again, an important thing to note when using a financial calculator to solve TVM problems is that you must enter your numbers according to the cash flow sign convention discussed above. If you do not make either the PV or the FV a negative number (with the other being a positive number), then you will end up getting an error message on the screen instead of the answer to the problem. The reason for this is that if both numbers you enter for the PV and FV are positive, the calculator will operate under the assumption that you are receiving a financial benefit without making any cash outlay as an initial investment. If you get such an error message in your calculations, you can simply press the CE/C key. This will clear the error, and you can reenter your data correctly by changing the sign of either PV or FV (but not both of these, of course).

Determining Periods of Time

Here is an additional example of using a financial calculator to solve a common time value of money problem. You want to be able to contribute $25,000 to your child’s first year of college tuition and related expenses. You currently have $15,000 in a tuition savings account that is earning 6% interest every year. How long will it take for this account grow into the targeted amount of $25,000, assuming no additional deposits or withdrawals will be made?

Table 7.6 shows the steps you will take.

The result of this calculation is a time period of 8.7667 years for the account to reach the targeted amount.

Example 4: Solving for the Interest Rate

Solving for an interest rate is a common TVM problem that can be easily addressed with a financial calculator. Let’s return to our earlier example, but in this case, we know that we have $1,000 at the present time and that we will need to have a total of $1,125.51 four years from now. Let’s also say that the only way we can add to the current value of our savings is through interest income. We will not be able to make any further deposits in addition to our initial $1,000 account balance.

What interest rate should we be sure to get on our savings account in order to have a total savings account value of $1,125.51 four years from now?

Once again, clear the calculator, and then enter 4 for N , -1,000 for PV , and 1,125.51 for FV . Then, press the CPT and I/Y keys and you will find that you need to earn an average 3% interest per year in order to grow your savings balance to the desired amount of $1,125.51. Again, if you end up with an error message, you probably failed to follow the sign convention relating to cash inflow and outflow that we discussed earlier. To correct this, you will need to clear the calculator and reenter the information correctly.

After you believe you are done and have arrived at a final answer, always make sure you give it a quick review. You can ask yourself questions such as “Does this make any sense?” “How does this compare to other answers I have arrived at?” or “Is this logical based on everything I know about the scenario?” Knowing how to go about such a review will require you to understand the concepts you are attempting to apply and what you are trying to make the calculator do. Further, it is critical to understand the relationships among the different inputs and variables of the problem. If you do not fully understand these relationships, you may end up with an incorrect answer. In the end, it is important to realize that any calculator is simply a tool. It will only do what you direct it to do and has no idea what your objective is or what it is that you really wish to accomplish.

Determining Interest or Growth Rate

Here is another example of using a financial calculator to solve a common time value of money problem. Let’s use a similar example to the one we used when calculating periods of time to determine an interest or growth rate. You still want to help your child with their first year of college tuition and related expenses. You also still have a starting amount of $15,000, but you have not yet decided on a savings plan to use.

Instead, the information you now have is that your child is just under 10 years old and will begin college at age 18. For simplicity’s sake, let’s say that you have eight and a half years before you will need to meet your total savings target of $25,000. What rate of interest will you need to grow your saved money from $15,000 to $25,000 in this time period, again with no other deposits or withdrawals?

Follow the steps shown in Table 7.7.

The result of this calculation is a necessary interest rate of 6.194%.

Using Excel to Solve TVM Problems

Excel spreadsheets can be excellent tools to use when solving time value of money problems. There are dozens of financial functions available in Excel, but a student who can use a few of these functions can solve almost any TVM problem. Special functions that relate to TVM calculations are as follows:

Excel also includes a function called Payment (PMT) that is used in calculations involving multiple payments or deposits (annuities). These will be covered in Time Value of Money II: Equal Multiple Payments.

Future Value (FV)

The Future Value function in Excel is also referred to as FV and can be used to calculate the value of a single lump sum amount carried to any point in the future. The FV function syntax is similar to that of the other four basic time-value functions and has the following inputs (referred to as arguments), similar to the functions listed above:

Lump sum problems do not involve payments, so the value of Pmt in such calculations is 0. Another argument, Type, refers to the timing of a payment and carries a default value of the end of the period, which is the most common timing (as opposed to the beginning of a period). This may be ignored in our current example, which means the default value of the end of the period will be used.

The spreadsheet in Figure 7.3 shows two examples of using the FV function in Excel to calculate the future value of $100 in five years at 5% interest.

In cell E1, the FV function references the values in cells B1 through B4 for each of the arguments. When a user begins to type a function into a spreadsheet, Excel provides helpful information in the form of on-screen tips showing the argument inputs that are required to complete the function. In our spreadsheet example, as the FV formula is being typed into cell E2, a banner showing the arguments necessary to complete the function appears directly below, hovering over cell E3.

Cells E1 and E2 show how the FV function appears in the spreadsheet as it is typed in with the required arguments. Cell E4 shows the calculated answer for cell E1 after hitting the enter key. Once the enter key is pressed, the hint banner hovering over cell E3 will disappear. The second example of the FV function in our example spreadsheet is in cell E6. Here, the actual numerical values are used in the FV function equation rather than cell references. The method in cell E8 is referred to as hard coding . In general, it is preferable to use the cell reference method, as this allows for copying formulas and provides the user with increased flexibility in accounting for changes to input data. This ability to accept cell references in formulas is one of the greatest strengths of Excel as a spreadsheet tool.

Download the spreadsheet file containing key Chapter 7 Excel exhibits.

Determining Future Value When Other Variables Are Known . You have $2,000 invested in a money market account that is expected to earn 4% annually. What will be the total value in the account in five years?

Note: Be sure to follow the sign conventions. In this case, the PV should be entered as a negative value.

Note: In Excel, interest and growth rates must be entered as percentages, not as whole integers. So, 4 percent must be entered as 4% or 0.04—not 4, as you would enter in a financial calculator.

Note: It is always assumed that if not specifically stated, the compounding period of any given interest rate is annual, or based on years.

Note: The Excel command used to calculate future value is as follows:

You may simply type the values for the arguments in the above formula. Another option is to use the Excel insert function option. If you decide on this second method, below are several screenshots of dialog boxes you will encounter and will be required to complete.

This dialog box allows you to either search for a function or select a function that has been used recently. In this example, you can search for FV by typing this in the search box and selecting Go, or you can simply choose FV from the list of most recently used functions (as shown here with the highlighted FV option).

Figure 7.6 shows the completed data input for the variables, referred to here as “function arguments.” Note that cell addresses are used in this example. This allows the spreadsheet to still be useful if you decide to change any of the variables. You may also type values directly into the Function Arguments dialog box, but if you do this and you have to change any of your inputs later, you will have to reenter the new information. Using cell addresses is always a preferable method of entering the function argument data.

Additional notes:

• The Pmt argument or variable can be ignored in this instance, or you can enter a placeholder value of zero. This example shows a blank or ignored entry, but either option may be used in problems such as this where the information is not relevant.
• The Type argument does not apply to this problem. Type refers to the timing of cash flows and is usually used in multiple payment or annuity problems to indicate whether payments or deposits are made at the beginning of periods or at the end. In single lump sum problems, this is not relevant information, and the Type argument box is left empty.
• When you use cell addresses as function argument inputs, the numerical values within the cells are displayed off to the right. This helps you ensure that you are identifying the correct cells in your function. The final answer generated by the function is also displayed for your preliminary review.

Once you are satisfied with the result, hit the OK button, and the dialog box will disappear, with only the final numerical result appearing in the cell where you have set up the function.

The FV of this present value has been calculated as approximately $2,433.31.

Present Value (PV)

We have covered the idea that present value is the opposite of future value. As an example, in the spreadsheet shown in Figure 7.3, we calculated that the future value of $100 five years from now at a 5% interest rate would be $127.63. By reversing this process, we can safely state that $127.63 received five years from now with a 5% interest (or discount) rate would have a value of just $100 today. Thus, $100 is its present value. In Excel, the PV function is used to determine present value (see Figure 7.7).

The formula in cell E1 uses cell references in a similar fashion to our FV example spreadsheet above. Also similar to our earlier example is the hard-coded formula for this calculation, which is shown in cell E6. In both cases, the answers we arrive at using the PV function are identical, but once again, using cell references is preferred over hard coding if possible.

Determining Present Value When Other Variables Are Known

You have just won a second-prize lottery jackpot that will pay a single total lump sum of $50,000 five years from now. You are interested in knowing how much value this would have in today’s dollars, assuming a 5% interest rate.

• If you wish for the present value amount to be positive, the future value you enter here should be a negative value.
• In Excel, interest and growth rates must be entered as percentages, not as whole integers. So, 5 percent must be entered as 5% or 0.05—not 5, as you would enter in a financial calculator.
• It is always assumed that if not specifically stated, the compounding period of any given interest rate is annual, or based on years.
• The Excel command used to calculate present value is as shown here:

As with the FV formula covered in the first tab of this workbook, you may simply type the values for the arguments in the above formula. Another option is to again use the Insert Function option in Excel. Figure 7.8, Figure 7.9, and Figure 7.10 provide several screenshots that demonstrate the steps you’ll need to follow if you decide to enter the PV function from the Insert Function menu.

As discussed in the FV function example above, this dialog box allows you to either search for a function or select a function that has been used recently. In this example, you can search for PV by typing this into the search box and selecting Go, or you can simply choose PV from the list of the most recently used functions.

Figure 7.10 shows the completed data input for the function arguments. Note that once again, cell addresses are used in this example. This allows the spreadsheet to still be useful if you decide to change any of the variables. As in the FV function example, you may also type values directly in the Function Arguments dialog box, but if you do this and you have to change any of your input later, you will have to reenter the new information. Remember that using cell addresses is always a preferable method of entering the function argument data.

Again, similar to our FV function example, the Function Arguments dialog box shows values off to the right of the data entry area, including our final answer. The Pmt and Type boxes are again not relevant to this single lump sum example, for reasons we covered in the FV example.

Review your answer. Once you are satisfied with the result, click the OK button, and the dialog box will disappear, with only the final numerical result appearing in the cell where you have set up the function. The PV of this future value has been calculated as approximately $39,176.31.

Periods of Time

The following discussion will show you how to use Excel to determine the amount of time a given present value will need to grow into a specified future value when the interest or growth rate is known.

You want to be able to contribute $25,000 to your child’s first year of college tuition and related expenses. You currently have $15,000 in a tuition savings account that is earning 6% interest every year. How long will it take for this account grow into the targeted amount of $25,000, assuming no additional deposits or withdrawals are made?

• As with our other examples, interest and growth rates must be entered as percentages, not as whole integers. So, 6 percent must be entered as 6% or 0.06—not 6, as you would enter in a financial calculator.
• The present value needs to be entered as a negative value in accordance with the sign convention covered earlier.
• The Excel command used to calculate the amount of time, or number of periods, is this:

As with our FV and PV examples, you may simply type the values of the arguments in the above formula, or we can again use the Insert Function option in Excel. If you do so, you will need to work with the various dialog boxes after you select Insert Function.

As discussed in our previous examples on FV and PV, this menu allows you to either search for a function or select a function that has been used recently. In this example, you can search for NPER by typing this into the search box and selecting Go, or you can simply choose NPER from the list of most recently used functions.

• Once you have highlighted NPER, click the OK button, and a new dialog box will appear for you to enter the necessary details. As in our previous examples, it will look like Figure 7.12.

Figure 7.13 shows the completed Function Arguments dialog box. Note that once again, we are using cell addresses in this example.

As in the previous function examples, values are shown off to the right of the data input area, and our final answer of approximately 8.77 is displayed at the bottom. Also, once again, the Pmt and Type boxes are not relevant to this single lump sum example.

Review your answer, and once you are satisfied with the result, click the OK button. The dialog box will disappear, with only the final numerical result appearing in the cell where you have set up the function.

The amount of time required for the desired growth to occur is calculated as approximately 8.77 years.

Interest or Growth Rate

You can also use Excel to determine the required growth rate when the present value, future value, and total number of required periods are known.

Let’s discuss a similar example to the one we used to calculate periods of time. You still want to help your child with their first year of college tuition and related expenses, and you still have a starting amount of $15,000, but you have not yet decided which savings plan to use.

Instead, the information you now have is that your child is just under 10 years old and will begin college at age 18. For simplicity’s sake, let’s say that you have eight and a half years until you will need to meet your total savings target of $25,000. What rate of interest will you need to grow your saved money from $15,000 to $25,000 in this time, again with no other deposits or withdrawals?

Note: The present value needs to be entered as a negative value.

Note: The Excel command used to calculate interest or growth rate is as follows:

As with our other TVM function examples, you may simply type the values for the arguments into the above formula. We also again have the same alternative to use the Insert Function option in Excel. If you choose this option, you will again see the Insert Function dialog box after you click the Insert Function button.

Once we complete the input, again using cell addresses for the required argument values, we will see what is shown in Figure 7.16.

As in our other examples, cell values are shown as numerical values off to the right, and our answer of approximately 0.0619, or 6.19%, is shown at the bottom of the dialog box.

This answer also can be checked from a logic point of view because of the similar example we worked through when calculating periods of time. Our present value and future value are the same as in that example, and our time period is now 8.5 years, which is just under the result we arrived at (8.77 years) in the periods example.

So, if we are now working with a slightly shorter time frame for the savings to grow from $15,000 into $25,000, then we would expect to have a slightly greater growth rate. That is exactly how the answer turns out, as the calculated required interest rate of approximately 6.19% is just slightly greater than the growth rate of 6% used in the previous example. So, based on this, it looks like our answer here passes a simple “sanity check” review.

• 1 The specific financial calculator in these examples is the Texas Instruments BA II Plus™ Professional model, but you can use other financial calculators for these types of calculations.

Featured Topics

Featured series.

A series of random questions answered by Harvard experts.

Explore the Gazette

Read the latest.

‘I haven’t really had a proper weekend in a long time’

Party like it’s 2020

Study of Psychedelics in Society and Culture announces funding recipients

‘you can solve anything’.

Priyanka Pillai wants to take on big problems — and has learned how good design can help

Christina Pazzanese

Harvard Staff Writer

Niles Singer/Harvard Staff Photographer

Part of the Commencement 2024 series

A collection of stories covering Harvard University’s 373rd Commencement.

Growing up in India, Priyanka Pillai witnessed the immense and varied struggles many impoverished people faced in their daily lives, such as getting prenatal care and protecting children from labor exploitation.

As an undergraduate in Bangalore studying industrial design, she wondered whether good design could help ease at least parts of these and other challenges. She came to Harvard Graduate School of Design two years ago and got her answer, discovering she could take on big problems “that you don’t even realize … could be tackled with design.”

Pillai wanted to do something to help address the refugee crisis in Uganda for her independent design engineering project. Those projects span two semesters and call for students seeking a master’s in design engineering (a joint GSD and John A. Paulson School of Engineering and Applied Sciences program) to identify complex, real-world problems and develop solution prototypes.

“For the first time, I truly felt like I was doing work that was very in touch with what GSD wants people to do, which is working with communities.”

Conducting fieldwork in Uganda, Pillai saw the difficulties that South Sudanese refugees were having reuniting with their families. The plight of those fleeing the ongoing civil war in the northeast African nation has become one of the largest refugee crises in the world, with more than half a million living in Uganda alone, mostly in camps.

More than 60 percent are children separated from parents who are looking for them, Pillai said, and need multiple layers of support. While non-governmental organizations (NGOs) are providing some assistance, much more help is needed.

“One thing that really stood out was agency. There’s currently a lack of agency when it comes to finding their family members on their own,” said Pillai, who graduates later this month. Many refugees use informal, ad hoc methods such as phone calls, WhatsApp, and photo sharing to try to find relatives.

“The second part, which is extremely critical, is that we need to move from a Western-centric way of finding a family member,” such as cataloguing names, ages, and date of separation done by NGOs, because it doesn’t capture vernacularor local geography, vital details that may speed up reunification, she said, noting that learning more about how to design for “the Indian context” and the Global South more generally was a key reason she came to Harvard.

“A lot of cultural nuances were missing in connection to the data to find missing family members,” she said. “And that’s the kind of solution that we’re moving toward.”

Given the ubiquity of cellphones there, Pillai and classmate Julius Stein designed and built an online platform for refugees to enter information about themselves using text, photos, and audio. The platform generates a series of questions that can lead to possible matches while minimizing the risk of exploitation by malign actors.

“For the first time, I truly felt like I was doing work that was very in touch with what GSD wants people to do, which is working with communities,” she said. “It was just a life-changing experience.”

Earlier this month, one startup Pillai is involved in, Alba, won an Ingenuity Award as part of the Harvard President’s Innovation Challenge. The team designed a special wipe so the visually impaired can better detect when their menstrual period has begun without relying on outside assistance.

In 2023, Pillai was part of a student project that won gold in the Spark International Design awards. The design team created Felt, a haptic armband that turns sound and visual clues into movement. The device assists people who are deaf blind to independently catch emotional nuances or subtexts in conversations, which often get lost in Braille or other translations.

During her time in the program, Pillai also jumped at the opportunity to take courses at the Harvard Kennedy School, Harvard Law School, and Harvard Graduate School of Education to learn more about things such as accessibility, ethical design, and negotiation.

“I knew that I was limiting myself because I didn’t know all these different things,” she said.

When not focused on her own studies, Pillai has been a teaching fellow for a design studio at GSD and at SEAS for a course led by her IDEP adviser, Krzysztof Gajos, Gordon McKay Professor of Computer Science.

“I love teaching,” she said. “It’s one of my favorite experiences.”

Reflecting on her time at GSD, Pillai has been deeply inspired by the faculty and her fellow students. This group from many different backgrounds with different interests and perspectives, working in many different disciplines, has been like a “dream” design studio where she’s been able to share and borrow ideas and practices from others and see how other fields look at things such as collaboration, sustainability and accessibility. It has been intellectually liberating to experience such fearlessness, she said, after years of feeling so “constrained” in her prior practice, which had been “rooted in ‘realistic goals.’”

“People tackling very huge issues that you don’t even realize 1) is a problem that could be tackled with design, and 2), they’re almost your age and they’re doing it somehow. That was very important to see,” she said.

“People really think that you can solve anything.”

Share this article

Also in this series:.

Longtime supporter of grads Kathy Hanley caps 13-year quest with a Commencement of her own

Class of ’24 gets a do-over on high school prom that pandemic took away

‘I was frustrated, infuriated, because women are just as capable’

Experiences in Uganda and U.S. fuel Ananda Birungi’s passion for empowering others, especially women and girls

You might like

Three major events, including Psychedelics Bootcamp 2024, to be hosted over summer

Epic science inside a cubic millimeter of brain

Researchers publish largest-ever dataset of neural connections

Pop star on one continent, college student on another

Model and musician Kazuma Mitchell managed to (mostly) avoid the spotlight while at Harvard

Finding right mix on campus speech policies

Legal, political scholars discuss balancing personal safety, constitutional rights, academic freedom amid roiling protests, cultural shifts

• Skip to main content
• Keyboard shortcuts for audio player

• Dear Life Kit
• Life Skills

The do's and don'ts of lending money

Andrew Limbong

Michelle Singletary and her husband used to lend money to her friends on a regular basis, until one incident "taught us a lesson," she says.

They lent money to a couple in their circle who didn't pay them back on time. "Then we attended a party at their house and noticed this new big-screen TV. And we're thinking, 'So you can buy a $1,500 TV, but you can't give our money back?'"

Singletary, a personal finance columnist for The Washington Post , didn't like that she was pocket-watching her friends. "So my husband and I decided we would only give money we didn't need to get back."

Lending money to friends and family is a tricky business. It can unite people in times of hardship. But it can also complicate relationships, especially because "so much of our financial decisions involve emotions," says Singletary, who is the author of a number of books on money management, including What to Do With Your Money When Crisis Hits: A Survival Guide.

When a loved one asks to borrow a significant amount of money, you have your own budget to consider — and your relationship, she says. What's your history together? How do you know whether you're in a position to help? Financial experts offer guidance on this topic, including how to say no without feeling guilty and what to do if you're asked to cosign a loan.

We want to hear from you: What are your thoughts on lending money?

Don't lend money. gift it.

The experts we spoke to agreed on this point: Don't lend money to people. If you have the funds and want to help out, give it to them as a gift instead. That way, you don't have to worry about the borrower paying you back or what to do if they don't.

"As individuals, we are not in the business of lending money. We don't know how to do it because there are a lot of feelings involved," says Singletary. "That's why it should be left up to financial institutions."

What is the new etiquette for tipping?

Avoid getting into a situation where the borrower wants to "write up a contract or have terms" on their loan, says financial educator Berna Anat , author of Money Out Loud: All the Financial Stuff No One Taught Us . They imply a contractual obligation, which may put a strain on relationships.

For that reason, Anat says, "if I'm giving money, I'm assuming it's a gift. It's not going to get paid back. So from my end, I know it's money I'm willing to lose."

DO let your budget guide your decision

"Ask yourself: Am I really in a position to be gifting money right now?" says Wendy De La Rosa , an assistant professor at the Wharton School at the University of Pennsylvania.

If you have extra money to share, then by all means, give the money. But if you have to pull from the funds you've set aside for critical expenditures like your rent, your car payment or tax money, "you are jeopardizing yourself," she says. It also puts you in a vulnerable financial position if the borrower does not pay you back.

DO create boundaries around whom you support

Guilt can play a role in deciding whether to give money to a loved one, says De La Rosa, especially if you were able to climb into a higher tax bracket than the one you grew up in. You probably had some help along the way and might feel some responsibility to pay it back somehow.

How to save money when you're broke

If this sounds like your situation, De La Rosa says to make a shortlist of the people whom you're willing to give money to. Maybe it's direct family only or just your close crew of friends. You can't exhaust your own funds to help everyone.

Don't forget to talk about those boundaries with your partner, says De La Rosa. "I was born in the Dominican Republic. Lots of people sacrificed to bring us here. My husband grew up in Texas. We had to be very clear when we got married about who was in our circle."

DO offer other ways to help

You checked your finances, and you realize you're not in any position to give anyone money. How do you say, "No, but I still care about you?"

Offer other ways to help, say our experts. It's not going to be easy. If someone is coming to you for money, it probably wasn't their first option. They're probably in a bad situation and don't see any other way out. They're vulnerable. And your turning them down is going to hurt.

De La Rosa had to have a "no" conversation with a member of her extended family. "It was painful," she says. But instead of giving the person money, she helped them with their budget. She listed their debts, set up spreadsheets and figured out an action plan to get them out of the hole. "They saw I was there with them. And they really appreciated it."

So think about other ways to assist your loved one during this difficult time. Offer to bring them dinner. Help them with child care so they can pick up a few more shifts at work.

DON'T cosign a loan

If a friend or relative asks you to cosign a loan, don't do it, say our experts. Cosigning a loan means you're agreeing to be responsible for someone else's debt. If the main borrower misses payments, you must repay the loan.

It also means that the debt is on your credit profile, says Singletary. "That could prevent you from getting a loan or make the loan you need more expensive."

Early in her career as a journalist, Singletary asked her grandmother to cosign a car loan. And her grandmother told her: "Let me get this straight. So the bank, which has way more money than I do, turned you down? Now you want to put my finances on the line?"

"That was the end of the conversation," says Singletary. Ultimately, she realized her grandmother was right. "I caught the bus until I could save up enough to get the loan."

Has a friend or family member ever asked to borrow money from you? Tell us about a time when you decided to pitch in — or a time when you had to say no. How did you make your decision? We may feature your response in a story on NPR. Email [email protected] with the subject line "Lending money."

The digital story was written by Malaka Gharib and edited by Meghan Keane. The visual editor is Beck Harlan. We'd love to hear from you. Leave us a voicemail at 202-216-9823, or email us at [email protected].

Listen to Life Kit on Apple Podcasts and Spotify , and sign up for our newsletter .

• Life Kit: Money

4 powerful mindset shifts that actually save you money, according to a financial therapist

• Getting out of debt or saving money can feel impossible depending on your circumstances.
• You can't control past financial decisions, but small mindset shifts can make a huge difference.
• A financial therapist shared 4 ways to reframe how you think about saving and budgeting.

As inflation booms , many Americans feel like they're in their own personal recession. Most people have drained their pandemic relief savings , racking up debt in the process.

While everyone's financial situation is different, there are mindset shifts that can help anyone save more, whether they're a cushy DINK or an ALICE living paycheck to paycheck.

Amanda Clayman, a financial therapist and host of Fresh Produce Media's Audible series " Emotional Investment ," told Business Insider that many people avoid thinking about money problems , which in turn makes them worse.

She said some people can try to "white-knuckle" their financial goals, believing that once they reach them, they won't have to worry about money again. But she said that isn't always realistic or easy, especially if you might be facing years of debt payments.

Clayman shared a few simple mindset shifts that have helped her clients when faced with different financial issues. Doing so is the first step to finding budgeting hacks and paying off debt .

1. Process your disappointments

If you feel overwhelmed by the idea of budgeting, Clayman said you should get to the root of why you're overwhelmed. Sometimes, it's less about your financial circumstances and more about having an expectation that life at this point would be different, she said.

For example, you might have banked on being promoted by now and feel discouraged by your current salary. Clayman said it's important to "mourn your old expectations, and find a way creatively to discover the opportunities for joy and peace while these are your circumstances."

"Surrender to the reality that this is what it's going to be for the foreseeable future," Clayman said. That helps you take action, rather than hope things change on their own.

2. Find a deeper purpose to budget

Saving is tough when you feel like your life is all work and no thrill. "That's where it becomes really dispiriting and hard to show up," Clayman said.

You need a deeper reason to stick to your goals if saving money will require both working a lot and turning down some fun experiences. That reason can be to raise a family or fund a life of travel .

Related stories

"The reframing can be around 'how do I find dignity in this effort or struggle?'" Clayman said. In paying off her own $19,000 debt in her 20s , she had to develop "a different definition of strength and what's cool and what's valuable," she said.

It helped her be more honest with friends about when activities were too expensive for her — something she avoided doing in the past.

3. View saving and fun as 'both/and'

When you're younger, it can be tempting to live life to the fullest and not think too much about money. But that can lead to serious debt later on.

"On the one hand, there could be an almost unlimited amount of money that one could spend right on travel and experiences," Clayman said. "But we also have this other value tool that we're trying to make room for, which is long-term security."

Rather than choosing between one or the other, Clayman said to look at saving and fun as a "both/and" situation.

It might mean getting creative with wedding arrangements , finding a lucrative side hustle , or even traveling the world to spend less on rent.

4. Focus on what you can control

If you're saddled with student loan debt , it's easy to blame yourself for a decision you made when you were 18.

But regret can ruin your confidence and motivation to do anything about it.

Instead, Clayman said it's wise to "accept that there are parts of this choice that are really painful," without making the experience part of your identity.

This is especially important as big debts are seldom paid off super quickly. Clayman said some people "feel so ashamed and overwhelmed at the idea that this debt is an unmovable burden" that they don't engage with it at all.

She said the better move is to "focus on how to be ok with limited control." Even if you don't have a full solution yet, it's always more beneficial to stay on top of what you can reasonably manage than to shut down and keep adding to the debt.

After all, Clayman said, "you can't fully rebel against the debt without it being worse for you than for your lender."

• Main content

Self-Esteem

It’s ok you can’t solve every problem, trying to “fix" everything can leave you feeling like a failure..

Updated May 10, 2024 | Reviewed by Ray Parker

• What Is Self-Esteem?
• Find a therapist near me
• Your intrinsic value is more than what you can do for other people.

You are still worthwhile and can be successful, even if you don’t have all the solutions.

• Consider which decision will make you feel you’ve stayed true to your values.

In coaching others, I often discuss problem-solving strategies to help individuals think creatively and consider many options when they are faced with challenging situations.

Problem solving 1-2 includes the following:

• Define the problem, identify obstacles, and set realistic goals .
• Generate a variety of alternative solutions to overcome obstacles identified.
• Choose which idea has the highest likelihood to achieve the goal.
• Try out the solution in real-life and see if it worked or not.

Problem-solving strategies can be helpful in many situations. Thinking creatively and testing out different potential solutions can help you come up with alternative ways of solving your problems.

While many problems can be solved, there are also situations in which there is no “perfect” solution or in which what seems to be the best solution still leaves you feeling unsatisfied or like you’re not doing enough.

I encourage you to increase your comfort around the following three truths:

1. You can’t always solve everyone else’s problems.

2. You can’t always solve all of your own problems.

3. You are not a failure if you can’t solve every problem.

You can’t always solve everyone else’s problems.

When someone around you needs help, do you feel compelled to find solutions to their problem?

Are you seen as the problem solver at your job or in your close relationships?

Does it feel uncomfortable for you to listen to someone tell you about a problem and not offer solutions?

There are times when others come to you because they know you can help them solve a problem. There are also times when the other person is coming to you not for a solution to their problem, but for support, empathy, and a listening ear.

Your relationships may be negatively impacted if others feel that you don’t fully listen and only try to “fix” everything for them. While this may feel like a noble act, it may lead the other person to feel like they have failed or that you think they are unable to solve their own problems.

Consider approaching such situations with curiosity by saying to the other person:

• As you share this information with me, tell me how I can best support you.
• What would be most helpful right now? Are you looking for an empathetic ear or want to brainstorm potential next steps?
• I want to be sure I am as helpful as I can be right now; what are you hoping to get out of our conversation?

You can’t always solve all of your own problems.

We are taught from a young age that problems have a solution. For example, while solving word problems in math class may not have been your favorite thing to do, you knew there was ultimately a “right” answer. Many times, the real world is much more complex, and many of the problems that you face do not have clear or “right” answers.

You may often be faced with finding solutions that do the most good for the most amount of people, but you know that others may still be left out or feel unsatisfied with the result.

Your beliefs about yourself, other people, and the world can sometimes help you make decisions in such circumstances. You may ask for help from others. Some may consider their faith or spirituality for guidance. While others may consider philosophical theories.

Knowing that there often isn’t a “perfect” solution, you may consider asking yourself some of the following questions:

• What’s the healthiest decision I can make? The healthiest decision for yourself and for those who will be impacted.
• Imagine yourself 10 years in the future, looking back on the situation: What do you think the future-you would encourage you to do?
• What would a wise person do?
• What decision will allow you to feel like you’ve stayed true to your values?

You are not a failure if you can’t solve all of the problems.

If you have internalized feeling like you need to be able to solve every problem that comes across your path, you may feel like a failure each time you don’t.

It’s impossible to solve every problem.

Your intrinsic value is more than what you can do for other people. You have value because you are you.

Consider creating more realistic and adaptive thoughts around your ability to help others and solve problems.

Some examples include:

• I am capable, even without solving all of the problems.
• I am worthwhile, even if I’m not perfect.
• What I do for others does not define my worth.
• In living my values, I know I’ve done my best.

I hope you utilize the information above to consider how you can coach yourself the next time you:

• Start to solve someone else’s problem without being asked.
• Feel stuck in deciding the best next steps.
• Judge yourself negatively.

1. D'zurilla, T. J., & Goldfried, M. R. (1971). Problem solving and behavior modification. Journal of abnormal psychology, 78(1), 107.

2. D’Zurilla, T. J., & Nezu, A. M. (2010). Problem-solving therapy. Handbook of cognitive-behavioral therapies, 3(1), 197-225.

Julie Radico, Psy.D. ABPP, is a board-certified clinical psychologist and coauthor of You Will Get Through This: A Mental Health First-Aid Kit.

• Find a Therapist
• Find a Treatment Center
• Find a Psychiatrist
• Find a Support Group
• Find Online Therapy
• United States
• Brooklyn, NY
• Chicago, IL
• Houston, TX
• Los Angeles, CA
• New York, NY
• Portland, OR
• San Diego, CA
• San Francisco, CA
• Seattle, WA
• Washington, DC
• Asperger's
• Bipolar Disorder
• Chronic Pain
• Eating Disorders
• Passive Aggression
• Personality
• Goal Setting
• Positive Psychology
• Stopping Smoking
• Low Sexual Desire
• Relationships
• Child Development
• Therapy Center NEW
• Diagnosis Dictionary
• Types of Therapy

At any moment, someone’s aggravating behavior or our own bad luck can set us off on an emotional spiral that threatens to derail our entire day. Here’s how we can face our triggers with less reactivity so that we can get on with our lives.

• Emotional Intelligence
• Gaslighting
• Affective Forecasting
• Neuroscience

Artificial intelligence in strategy

Can machines automate strategy development? The short answer is no. However, there are numerous aspects of strategists’ work where AI and advanced analytics tools can already bring enormous value. Yuval Atsmon is a senior partner who leads the new McKinsey Center for Strategy Innovation, which studies ways new technologies can augment the timeless principles of strategy. In this episode of the Inside the Strategy Room podcast, he explains how artificial intelligence is already transforming strategy and what’s on the horizon. This is an edited transcript of the discussion. For more conversations on the strategy issues that matter, follow the series on your preferred podcast platform .

Joanna Pachner: What does artificial intelligence mean in the context of strategy?

Yuval Atsmon: When people talk about artificial intelligence, they include everything to do with analytics, automation, and data analysis. Marvin Minsky, the pioneer of artificial intelligence research in the 1960s, talked about AI as a “suitcase word”—a term into which you can stuff whatever you want—and that still seems to be the case. We are comfortable with that because we think companies should use all the capabilities of more traditional analysis while increasing automation in strategy that can free up management or analyst time and, gradually, introducing tools that can augment human thinking.

Joanna Pachner: AI has been embraced by many business functions, but strategy seems to be largely immune to its charms. Why do you think that is?

Subscribe to the Inside the Strategy Room podcast

Yuval Atsmon: You’re right about the limited adoption. Only 7 percent of respondents to our survey about the use of AI say they use it in strategy or even financial planning, whereas in areas like marketing, supply chain, and service operations, it’s 25 or 30 percent. One reason adoption is lagging is that strategy is one of the most integrative conceptual practices. When executives think about strategy automation, many are looking too far ahead—at AI capabilities that would decide, in place of the business leader, what the right strategy is. They are missing opportunities to use AI in the building blocks of strategy that could significantly improve outcomes.

I like to use the analogy to virtual assistants. Many of us use Alexa or Siri but very few people use these tools to do more than dictate a text message or shut off the lights. We don’t feel comfortable with the technology’s ability to understand the context in more sophisticated applications. AI in strategy is similar: it’s hard for AI to know everything an executive knows, but it can help executives with certain tasks.

When executives think about strategy automation, many are looking too far ahead—at AI deciding the right strategy. They are missing opportunities to use AI in the building blocks of strategy.

Joanna Pachner: What kind of tasks can AI help strategists execute today?

Yuval Atsmon: We talk about six stages of AI development. The earliest is simple analytics, which we refer to as descriptive intelligence. Companies use dashboards for competitive analysis or to study performance in different parts of the business that are automatically updated. Some have interactive capabilities for refinement and testing.

The second level is diagnostic intelligence, which is the ability to look backward at the business and understand root causes and drivers of performance. The level after that is predictive intelligence: being able to anticipate certain scenarios or options and the value of things in the future based on momentum from the past as well as signals picked in the market. Both diagnostics and prediction are areas that AI can greatly improve today. The tools can augment executives’ analysis and become areas where you develop capabilities. For example, on diagnostic intelligence, you can organize your portfolio into segments to understand granularly where performance is coming from and do it in a much more continuous way than analysts could. You can try 20 different ways in an hour versus deploying one hundred analysts to tackle the problem.

Predictive AI is both more difficult and more risky. Executives shouldn’t fully rely on predictive AI, but it provides another systematic viewpoint in the room. Because strategic decisions have significant consequences, a key consideration is to use AI transparently in the sense of understanding why it is making a certain prediction and what extrapolations it is making from which information. You can then assess if you trust the prediction or not. You can even use AI to track the evolution of the assumptions for that prediction.

Those are the levels available today. The next three levels will take time to develop. There are some early examples of AI advising actions for executives’ consideration that would be value-creating based on the analysis. From there, you go to delegating certain decision authority to AI, with constraints and supervision. Eventually, there is the point where fully autonomous AI analyzes and decides with no human interaction.

Because strategic decisions have significant consequences, you need to understand why AI is making a certain prediction and what extrapolations it’s making from which information.

Joanna Pachner: What kind of businesses or industries could gain the greatest benefits from embracing AI at its current level of sophistication?

Yuval Atsmon: Every business probably has some opportunity to use AI more than it does today. The first thing to look at is the availability of data. Do you have performance data that can be organized in a systematic way? Companies that have deep data on their portfolios down to business line, SKU, inventory, and raw ingredients have the biggest opportunities to use machines to gain granular insights that humans could not.

Companies whose strategies rely on a few big decisions with limited data would get less from AI. Likewise, those facing a lot of volatility and vulnerability to external events would benefit less than companies with controlled and systematic portfolios, although they could deploy AI to better predict those external events and identify what they can and cannot control.

Third, the velocity of decisions matters. Most companies develop strategies every three to five years, which then become annual budgets. If you think about strategy in that way, the role of AI is relatively limited other than potentially accelerating analyses that are inputs into the strategy. However, some companies regularly revisit big decisions they made based on assumptions about the world that may have since changed, affecting the projected ROI of initiatives. Such shifts would affect how you deploy talent and executive time, how you spend money and focus sales efforts, and AI can be valuable in guiding that. The value of AI is even bigger when you can make decisions close to the time of deploying resources, because AI can signal that your previous assumptions have changed from when you made your plan.

Joanna Pachner: Can you provide any examples of companies employing AI to address specific strategic challenges?

Yuval Atsmon: Some of the most innovative users of AI, not coincidentally, are AI- and digital-native companies. Some of these companies have seen massive benefits from AI and have increased its usage in other areas of the business. One mobility player adjusts its financial planning based on pricing patterns it observes in the market. Its business has relatively high flexibility to demand but less so to supply, so the company uses AI to continuously signal back when pricing dynamics are trending in a way that would affect profitability or where demand is rising. This allows the company to quickly react to create more capacity because its profitability is highly sensitive to keeping demand and supply in equilibrium.

Joanna Pachner: Given how quickly things change today, doesn’t AI seem to be more a tactical than a strategic tool, providing time-sensitive input on isolated elements of strategy?

Yuval Atsmon: It’s interesting that you make the distinction between strategic and tactical. Of course, every decision can be broken down into smaller ones, and where AI can be affordably used in strategy today is for building blocks of the strategy. It might feel tactical, but it can make a massive difference. One of the world’s leading investment firms, for example, has started to use AI to scan for certain patterns rather than scanning individual companies directly. AI looks for consumer mobile usage that suggests a company’s technology is catching on quickly, giving the firm an opportunity to invest in that company before others do. That created a significant strategic edge for them, even though the tool itself may be relatively tactical.

Joanna Pachner: McKinsey has written a lot about cognitive biases  and social dynamics that can skew decision making. Can AI help with these challenges?

Yuval Atsmon: When we talk to executives about using AI in strategy development, the first reaction we get is, “Those are really big decisions; what if AI gets them wrong?” The first answer is that humans also get them wrong—a lot. [Amos] Tversky, [Daniel] Kahneman, and others have proven that some of those errors are systemic, observable, and predictable. The first thing AI can do is spot situations likely to give rise to biases. For example, imagine that AI is listening in on a strategy session where the CEO proposes something and everyone says “Aye” without debate and discussion. AI could inform the room, “We might have a sunflower bias here,” which could trigger more conversation and remind the CEO that it’s in their own interest to encourage some devil’s advocacy.

We also often see confirmation bias, where people focus their analysis on proving the wisdom of what they already want to do, as opposed to looking for a fact-based reality. Just having AI perform a default analysis that doesn’t aim to satisfy the boss is useful, and the team can then try to understand why that is different than the management hypothesis, triggering a much richer debate.

In terms of social dynamics, agency problems can create conflicts of interest. Every business unit [BU] leader thinks that their BU should get the most resources and will deliver the most value, or at least they feel they should advocate for their business. AI provides a neutral way based on systematic data to manage those debates. It’s also useful for executives with decision authority, since we all know that short-term pressures and the need to make the quarterly and annual numbers lead people to make different decisions on the 31st of December than they do on January 1st or October 1st. Like the story of Ulysses and the sirens, you can use AI to remind you that you wanted something different three months earlier. The CEO still decides; AI can just provide that extra nudge.

Joanna Pachner: It’s like you have Spock next to you, who is dispassionate and purely analytical.

Yuval Atsmon: That is not a bad analogy—for Star Trek fans anyway.

Joanna Pachner: Do you have a favorite application of AI in strategy?

Yuval Atsmon: I have worked a lot on resource allocation, and one of the challenges, which we call the hockey stick phenomenon, is that executives are always overly optimistic about what will happen. They know that resource allocation will inevitably be defined by what you believe about the future, not necessarily by past performance. AI can provide an objective prediction of performance starting from a default momentum case: based on everything that happened in the past and some indicators about the future, what is the forecast of performance if we do nothing? This is before we say, “But I will hire these people and develop this new product and improve my marketing”— things that every executive thinks will help them overdeliver relative to the past. The neutral momentum case, which AI can calculate in a cold, Spock-like manner, can change the dynamics of the resource allocation discussion. It’s a form of predictive intelligence accessible today and while it’s not meant to be definitive, it provides a basis for better decisions.

Joanna Pachner: Do you see access to technology talent as one of the obstacles to the adoption of AI in strategy, especially at large companies?

Yuval Atsmon: I would make a distinction. If you mean machine-learning and data science talent or software engineers who build the digital tools, they are definitely not easy to get. However, companies can increasingly use platforms that provide access to AI tools and require less from individual companies. Also, this domain of strategy is exciting—it’s cutting-edge, so it’s probably easier to get technology talent for that than it might be for manufacturing work.

The bigger challenge, ironically, is finding strategists or people with business expertise to contribute to the effort. You will not solve strategy problems with AI without the involvement of people who understand the customer experience and what you are trying to achieve. Those who know best, like senior executives, don’t have time to be product managers for the AI team. An even bigger constraint is that, in some cases, you are asking people to get involved in an initiative that may make their jobs less important. There could be plenty of opportunities for incorpo­rating AI into existing jobs, but it’s something companies need to reflect on. The best approach may be to create a digital factory where a different team tests and builds AI applications, with oversight from senior stakeholders.

The big challenge is finding strategists to contribute to the AI effort. You are asking people to get involved in an initiative that may make their jobs less important.

Joanna Pachner: Do you think this worry about job security and the potential that AI will automate strategy is realistic?

Yuval Atsmon: The question of whether AI will replace human judgment and put humanity out of its job is a big one that I would leave for other experts.

The pertinent question is shorter-term automation. Because of its complexity, strategy would be one of the later domains to be affected by automation, but we are seeing it in many other domains. However, the trend for more than two hundred years has been that automation creates new jobs, although ones requiring different skills. That doesn’t take away the fear some people have of a machine exposing their mistakes or doing their job better than they do it.

Joanna Pachner: We recently published an article about strategic courage in an age of volatility  that talked about three types of edge business leaders need to develop. One of them is an edge in insights. Do you think AI has a role to play in furnishing a proprietary insight edge?

Yuval Atsmon: One of the challenges most strategists face is the overwhelming complexity of the world we operate in—the number of unknowns, the information overload. At one level, it may seem that AI will provide another layer of complexity. In reality, it can be a sharp knife that cuts through some of the clutter. The question to ask is, Can AI simplify my life by giving me sharper, more timely insights more easily?

Joanna Pachner: You have been working in strategy for a long time. What sparked your interest in exploring this intersection of strategy and new technology?

Yuval Atsmon: I have always been intrigued by things at the boundaries of what seems possible. Science fiction writer Arthur C. Clarke’s second law is that to discover the limits of the possible, you have to venture a little past them into the impossible, and I find that particularly alluring in this arena.

AI in strategy is in very nascent stages but could be very consequential for companies and for the profession. For a top executive, strategic decisions are the biggest way to influence the business, other than maybe building the top team, and it is amazing how little technology is leveraged in that process today. It’s conceivable that competitive advantage will increasingly rest in having executives who know how to apply AI well. In some domains, like investment, that is already happening, and the difference in returns can be staggering. I find helping companies be part of that evolution very exciting.

Explore a career with us

Related articles.

Strategic courage in an age of volatility

Bias Busters Collection

Need a good bill splitting app? Here are our recommendations

Spending time with friends is always a treat, but it can get awkward when it comes to divvying up the expenses. However, there's no need to stress about the math and logistics of everyone paying their share, as technology can take care of it. Whether it's something as straightforward as a dinner bill or a bit more complex, like a vacation with multiple expenses involved, apps can help you keep track of costs, figure out who owes what and easily facilitate paying someone back.

Plus, many of these apps are great options to help split your regular expenses, like rent or utilities. 

Watch this video to see how apps can help you split the bill with friends.  

Easily split payments

You're probably already using a payment app like PayPal, Venmo , Zelle or CashApp. These apps are great for getting paid or paying someone back but often require you to do the math to determine exactly what's due and by whom.

Learn more: Best travel insurance

However, in November 2023, Venmo introduced Venmo Groups to make splitting expenses among a group of people easier. According to the company, the feature reduces "the need for spreadsheets" by automatically calculating who owes what. 

Splitwise is another useful app for splitting costs, not only between friends or roommates but when what's due isn't a 50/50 split. The app has options such as splitting a total by percentages or shares. Plus, you can connect your third-party payment app, such as PayPal or Venmo, to make the payment. 

Whichever payment route you choose, it works best when everyone involved in the transaction has the app. So, find the one that works best for you and your situation.

Uncomfortable Conversations: Did you get stuck splitting the dining bill unfairly?

Always be careful when sending money on apps, and always, always, always double (or triple!) check that you're sending it to the correct person. Once a payment is sent, it usually can't be unsent. 

Reviewed-approved iPhone accessories  

Purchases you make through our links may earn us and our publishing partners a commission.   

Reviewed helps you find the best stuff and get the most out of what you already own. Our team of tech experts test everything from Apple AirPods and screen protectors to iPhone tripods and car mounts so you can shop for the best of the best. 

• A rugged iPhone case:  Casekoo Crystal Clear Protective Case  
• A top wireless charger: Yootech Wireless Charger  
• Our favorite screen protector: Ailun Glass Screen Protector  
• The best portable battery pack: Mophie Powerstation Plus  
• Durable phone car holders: Beam Electronics Phone Holder  
• An iPhone tripod we love: Aureday Phone Tripod  
• The best USB-C cable: Anker 6 Foot USB-C Cable, Pack of 2