How Much Do I Need to Save Monthly?

Savings Goal Calculator

Savings Goal Calculator
Initial Deposit $
Annual Interest Rate   %
Number of Years (Y)  
Total Amount Saved
After Y Years
$

An easy way to reach a savings goal is to deposit a fixed amount in an interest-bearing account each month. For example, if you save $250 a month for 5 years and deposit it into an account that earns 3.6% annually, at the end of 5 years you will have $16,408 in the bank.

If you know the interest rate and amount of the monthly deposit, you can use the savings account balance calculator to compute the total amount saved.

If, however, you have a savings goal in mind but don't know how much you should save each month, you can use the savings goal calculator on the left to compute the amount of the mounthly deposit.

For example, suppose you wish to save $25,000 in 6 years by making monthly deposits in an account that earns 3.6% annually. Using the calculator you will see that you need to set aside at least $311.59 each month.

Formula for Figuring the Monthly Deposit

Suppose you have an initial balance of P dollars, an annual interest rate of r (expressed as a decimal), and a goal of saving G dollars in Y years. Then the minimum amount of money you need to deposit into your savings or investment account every month is given by the expression

                    (r/12)[G - P(1 + r/12)12Y]/[(1 + r/12)12Y - 1]

If r = 0, then the amount you need to deposit each month is simply (G-P)/(12Y).

Example Applying the Savings Goal Formula

Suppose you start with a savings account balance of $1,000 and you want to save $10,000 by the end of 2 years. If the annual interest rate is 4%, then your variables are

P = 1000
G = 10000
r = 0.04
Y = 2

Using the formula gives you

(0.04/12)[10000 - 1000(1 + 0.04/12)12*2]/[(1 + 0.04/12)12*2 - 1]
= 0.0033333[10000 - 1000(1.0033333)24]/[1.003333324 - 1]
= 0.0033333[8916.85704]/[0.083143]
= 357.49

So you need to set aside at least $357.49 each month in order to reach your goal.


© Had2Know 2010

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