Monthly savings in 3 steps
- Monthly rate rannual return ÷ 12
- Future value of savingscurrent amount × (1+r)ⁿ
- Divide the shortfalltarget − future value, divided by the growth multiple
Monthly saving = (target − current × (1+r)ⁿ) ÷ (((1+r)ⁿ − 1) ÷ r × (1+r)) (n = months)
How the savings goal calculator works
Whether you are saving for a house deposit, a car, a wedding or an emergency fund, the question is the same: how much do I need to put aside every month to get there on time? This calculator works backwards from your goal. It takes into account the money you already have, the interest it will earn, and the interest earned by each monthly deposit.
It assumes you deposit at the start of every month and that interest is compounded monthly at the annual rate ÷ 12. The future value of your plan is:
FV = S × (1+r)ⁿ + P × ((1+r)ⁿ − 1) ÷ r × (1+r)
where S is what you have saved so far, P is the monthly deposit, r is the monthly rate and n is the number of months. Setting FV equal to your goal and solving for P gives the monthly amount, which is rounded up to the next cent. With a 0% rate the formula becomes simply (goal − savings) ÷ months.
Worked example
Goal: 20,000 in 3 years (36 months). You have 2,000 today and expect 4% a year.
| Item | Result |
|---|---|
| Monthly rate | 4% ÷ 12 = 0.3333% |
| 2,000 grows to | 2,254.54 |
| Monthly deposit needed | 463.23 |
| Total you put in (2,000 + 36 × 463.23) | 18,676.28 |
| Interest earned | 1,324.07 |
| Projected balance | 20,000.35 |
| Monthly deposit at 0% interest | 500.00 |
At 4%, interest covers about 1,300 of the goal, so you save roughly 37 a month less than you would with no interest. The longer the time frame, the bigger that effect becomes, which is why starting early matters more than finding the perfect rate.
Tips to reach your goal faster
- Automate the deposit. Schedule a transfer for the day after payday. Money that never lands in your checking account is much easier not to spend.
- Pick the right account. High-yield savings accounts and certificates of deposit usually pay more than a standard savings account. For goals more than several years away, some people invest instead, but returns are not guaranteed.
- Round up. If the result is 463.23, saving 475 or 500 builds a buffer for months when you cannot save as much.
- Add windfalls. Tax refunds, bonuses and gifts can go straight into the goal account. Enter the new balance as “Amount saved so far” and recalculate to see your lower monthly target.
- Recheck once a year. Interest rates change. Update the rate and the remaining time so the monthly figure stays realistic.
Reading the chart
The shaded line shows your projected balance at the end of each year, and the second line shows only the money you put in. The gap between them is interest. In the early years the gap is small, then it widens as interest starts earning interest of its own. If the two lines almost overlap, your rate or time frame is too short for compounding to help much, and the deposit amount is what really matters.
Cautions
The calculation is before tax and assumes a constant interest rate for the whole period. Real accounts may change their rate, compound daily or pay interest on a different schedule, so the final balance can differ slightly. Inflation is not included either: 20,000 three years from now will buy less than 20,000 does today, so for long-term goals consider raising the target to allow for rising prices.