# How to Annualize

If you need to analyze data for taxes or a budget, then 1 of the best ways to do so is to figure out how much something will cost on a yearly basis. This is called annualizing data. Most salary and interest rates are not conveniently calculated on a yearly basis. Although this is especially important to investments and people on wages, instead of salaries, it can extend to gym membership costs or budgeting for a morning latte at a local coffee shop. With a calculator and some simple data, you analyze your income, expenses or investments for the year. This article will tell you how to annualize.

## Steps

1. 1
Gather the data that you want to annualize. This could be pay stubs, receipts or a credit card offer that just came in the mail.
2. 2
Figure out the number to be annualized. Perhaps you receive a stipend of \$500 per month, or \$3.50 for a latte. In these cases, the dollar amount is the number to be annualized.
3. 3
Decide the time period that your current data covers. For example, if you buy a latte every day, your time period is 1 day. If you receive a stipend every month, then your time period is a month.
• It is important to keep in mind that "daily" time periods may depend upon the number of days you work in a week. For example, if you buy a latte 5 days out of the week, then your time period is different than if you bought a latte 7 days out of the week.
4. 4
Figure out how many time periods are in 1 year. If your time period is a month, then there are 12 months in a year. If you buy a latte every day, then there are approximately 365 time periods in the year.
• If you buy a latte every day you go to work, 5 days out of every week, then you must figure out approximately how many days you buy a latte within a year. There are 52 weeks in a year, so you would buy a latte 5 days out of every 52. Multiply 5 times 52 and you have 260 days out of every year.
5. 5
Multiply the number that you want annualized by the number of time periods in a year to figure out an annualized number. For example, if you annualize your stipend you multiply \$500 by 12, and you would receive \$6000 per year. If you annualize your latte purchases, you multiply \$3.50 by 365, and you find you would spend \$1,277.50 per year.
• To figure out your annualized data for weekday latte purchases, then you multiply \$3.50 by 260. You will find you would spend \$910 every year on lattes.
6. 6
Use a formula to calculate an annual rate of return using a percentage. The formula is Annual Rate of Return = (1 + Monthly Rate of Return)12 � 1. The number 12 is an exponent, rather than a number to multiply.
• If you have a quarterly rate of return, you would use an exponent of 4 rather than 12.
• For example, you want to calculate what an Annual Rate of Return (ARR) would be if your investments kept giving you an 8 percent return for a year. You must first convert your percentage to decimals, so 8 percent is 0.08. Your formula would look like this: ARR = (1 + 0.08)12 -1. As you begin to do the problem, it would look like this: ARR = (1.08)12-1. Then ARR = 2.51817-1. Then, ARR = 1.51817. If you convert it into a percentage, your Annual Rate of Return is 151.8 percent. This would indicate a very good investment, but most ARR are much lower than this.

## Tips

• It is important to keep in mind that annualized data is usually an estimate. It does not take into account possible changes in the data in the remaining months of the year.
• Annualizing percentages requires a different formula than annualizing data. You will need a more sophisticated calculator that calculates exponents.

## Warnings

• Annualizing data does not usually take into account compounding of interest on a daily basis. For this reason, it may not be the most accurate way to figure out your rate of return on investments that are compounded in more than 1 way.

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## Article Info

Categories: Databases | Taxes and Fees