Financial Calculations With The Payment (PMT) Function

Updated on September 4th, 2022

I know that doctors, in general, don’t like working with numbers. However, I do know that doctors like to use calculators when necessary in the clinic. I have an app on my iPhone that does radiation dose conversions when I need it in the clinic.

In personal finance, there are a couple of key spreadsheet functions you should be familiar with. In a previous post, I discussed the Future Value function. In this post, I’ll review the Payment (PMT) function, which is a great function for student loan and retirement calculations.

Calculations using the payment (PMT) function with Google Sheets

You can build complicated spreadsheets or use fancy software to more precisely do these types of calculations, but the simple PMT function can get you a ballpark answer.

To use the payment function, simply type =PMT( into any cell of the spreadsheet

Once you type in =PMT(, Google Sheets knows you are trying to calculate a payment function and guides you right along each step of the way:

Let’s run through the variables in the payment function, one-by-one:


This is the interest rate (either that you will pay, or you will receive if you are investing). Always use a positive value for this.

Number of Periods

This is the number of periods in the payment calculation. For most calculations, it’s the number of payments or contributions you make. You can input annual payments or monthly payments, but remember to adjust the interest rate accordingly (i.e. use a monthly interest rate if you are using monthly payments).

Present Value

This is the starting value. Use positive numbers for loans (e.g. student loans, mortgage), and negative numbers for investments (e.g. retirement calculations)

Future Value (optional)

If you leave this number blank, then it is assumed to be zero. This is good for student loan and mortgage payoff calculations, but for retirement calculations, you will want to put in a (negative) number for this.

End or Beginning (optional)

This optional variable determines whether the payment is due at the beginning or the end of a period. Use 0 for the end of the period and 1 for the beginning of the period.

Microsoft Excel Payment (PMT) Function

Microsoft offers a limited version of Microsoft Excel for free online, which includes the payment function.

To use the payment (PMT) function in Excel, simply type =PMT( into any cell of the spreadsheet:

The order of the PMT function variables is the same in Microsoft Excel as in Google Sheets.

Example Problems

Student Loan Payback

Dr. A finishes residency with $250,000 in debt at an interest rate of 5% annually. She would like to pay off her student loans in 5 years (60 months) after residency. She wants to make monthly payments at the end of each month to pay down her student loans. What should be her monthly payments to pay off her loans?

  • Rate: 5%/12 (while not strictly correct if her loan compounds annually instead of monthly, this works for this back of the envelope calculation).
  • Number of Periods: 60 (months)
  • Present Value: 250,000 (remember that this number is positive for loans)
  • Future Value: leave blank or input 0 (we want the loans to be paid off at the end of five years)
  • End or beginning: 0 (zero for end, one for beginning)

= =PMT(5%/12, 60, 250000, 0, 0)

= -$4,717.81

Her monthly payment should be $4,717,81 per month to pay off your $250,000 5% student loans in 5 years.

Saving For College

Dr. B has a newborn and is trying to save for her future private college. He would like to pay for his daughter to go to a private school in full. He estimates that college will cost $125,000 a year in 18 years, so he will need to save $500,000. Assuming an investment return of 8%, how much will he need to save at the beginning of each year for college?

  • Rate: 8%
  • Number of Periods: 18 (years)
  • Present Value: 0
  • Future Value: -500,000 (remember to use negative numbers for investments and savings)
  • End or beginning: 1 (zero for end, one for beginning)

=PMT(8%, 18, 0,-500000,1)

= $12,362.08

Dr. B will need to save $12,362.08 per year from his daughter’s birth to accumulate $500,000 for her future private school college education.

Investing For Retirement

Dr. C finishes residency with $200,000 in debt. She wants to have $5,000,000 in her retirement account in 35 years. Assuming an investment return of 4%, how much will she need to save at the beginning of each year to meet her retirement goals?

  • Rate: 4%
  • Number of Periods: 35 (years)
  • Present Value: 200,000 (remember that this number is positive for loans)
  • Future Value: -5,000,000 (remember to use negative numbers for investments and savings)
  • End or beginning: 1 (zero for end, one for beginning)

=PMT(4%, 35, 200000,-5000000,1)


In order to have $5,000,000 in her retirement account in 35 years (assuming a 4% return), she will need to save $54,972.26 each year.

Example Calculator

Maybe you just don’t want to have to type in the variables yourself in an explicit spreadsheet function. I went ahead and made a simple spreadsheet that will run the payment function for you. Bookmark this page for future reference whenever you want to run some numbers.


The payment function is a way to quickly do compound interest calculations using a basic spreadsheet editor. It’s as easy a typing a single function in a spreadsheet like Microsoft Excel or Google Sheets. If you want to just type in numbers, feel free to use the spreadsheet I’ve made above to run the numbers.

What do you think? Do you use the payment function to do compound interest calculations?


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