Future value tells you how much a current investment or series of payments will be worth at a specified date in the future, assuming a certain rate of return. It is the counterpart to present value and is a core building block in financial planning, retirement projections, and savings goal setting.

The formula combines the future value of a lump sum and an annuity: FV = PV(1 + r/m)^(nm) + PMT[((1 + r/m)^(nm) - 1) / (r/m)]. If payments are made at the beginning of each period (annuity due), the annuity portion is multiplied by an additional (1 + r/m). Here, PV is the present value, PMT is the periodic payment, r is the annual rate, m is the compounding frequency, and n is the number of years.

For example, investing $5,000 today with $200 monthly contributions at a 7% annual return compounded monthly produces roughly $39,600 after 10 years. Of that amount, about $29,000 comes from your contributions and $10,600 from compound interest. The power of compounding means that the longer you invest, the larger the proportion of your total that comes from interest earnings rather than your own contributions.