Savings Goal Calculator
Most savings calculators tell you what you will have. This answers the question people actually ask: what do I need to put away each month to get there.
Save each month
$640.87per month
- Monthly saving
- $640.87
- Target
- $50,000.00
- Starting from
- $5,000.00
- You would add
- $38,452.33
- From growth
- $6,547.67
- Time
- 5 years
- Assumes the rate holds and every contribution is made. Missing months matter more early on, because that money has the longest to compound.
About the savings goal calculator
The usual compound interest calculator runs forwards — put in a contribution and a rate and it tells you the balance. That is the wrong direction for planning. You normally know the number you need and the date you need it by; the unknown is the monthly amount.
This runs the same formula backwards. To reach $50,000 in five years starting from $5,000 at 5%, you need $640.87 a month. Of the $50,000, about $38,452 is money you put in and roughly $6,548 is growth on top of the starting balance and the contributions.
Two things move the answer more than the rate does. Time is the first — the same target over ten years instead of five needs less than half the monthly amount, because the earlier contributions have twice as long to compound. The starting balance is the second, and it works harder than an equivalent contribution because it is present for the whole period.
For a short goal, treat the rate with suspicion. Over two or three years the return is a rounding error next to the contributions, and money you need on a date should not be anywhere it can fall. Over ten or twenty the rate is doing much of the work, and the risk is worth taking.
The assumption underneath is that every contribution is actually made. Missing months early costs more than missing them late, since that money had the longest left to compound.
What it works out
- The monthly amount needed to hit a target
- How much of the total is contributions and how much is growth
- Any starting balance, rate and time frame
- A house deposit, a car, a wedding or an emergency fund
The formula
Monthly = (Target − Start × (1+r)ⁿ) × r ÷ ((1+r)ⁿ − 1)
The future value formula, solved for the payment instead of the balance. r is the monthly rate and n the number of months.
The first step is to work out what the starting balance becomes on its own: $5,000 at 5% for five years grows to about $6,417. That leaves $43,583 for the contributions to cover, and the second half of the formula works out the monthly amount whose own compounding lands exactly there — $640.87.
Doubling the time does much more than halving the monthly amount. Over ten years rather than five, the same $50,000 target needs about $269 a month, not $320. Every early contribution has twice as long to earn, and that difference compounds.
Contributions are treated as arriving at the end of each month, which is the ordinary convention and the conservative one. Paying at the start of the month instead gains each contribution one extra month of growth, which is worth a little under half a per cent a year.
- Target
- What you need, and when.
- Start
- What you already have. It compounds for the whole period, so it works harder than a contribution.
- r
- The monthly return — the annual rate divided by twelve.
- n
- The number of monthly contributions.
A worked example
Reaching $50,000 in five years, starting from $5,000 already saved, at a 5% return.
That works out to $640.87 per month.
- Monthly saving
- $640.87
- Target
- $50,000.00
- Starting from
- $5,000.00
- You would add
- $38,452.33
- From growth
- $6,547.67
- Time
- 5 years
Questions
How much do I need to save a month for $50,000 in 5 years?
$640.87 a month if you start from $5,000 at a 5% return. Starting from nothing at the same rate it is about $735 a month.
Does the interest rate matter much?
It depends almost entirely on the time frame. Over two or three years the return is a rounding error beside the contributions. Over twenty it does more of the work than you do.
What return should I assume?
For a goal within about three years, whatever a savings account actually pays, because money needed on a date should not be somewhere it can fall. For a ten-year-plus goal people commonly model a diversified portfolio, and it is worth being conservative — a projection that only works at an optimistic rate is a fragile plan.
Is it better to save more or for longer?
Longer, by a wide margin, because time compounds and a larger contribution does not. Ten years at $269 a month reaches the same $50,000 as five years at $641 — around $32,300 of contributions instead of $38,500.
What if I miss a month?
You end up short by more than the missed contribution, because that money had the whole remaining period to grow. Missing early costs noticeably more than missing late. Making it up in a later month recovers most but not all of it.
Does this account for inflation?
No. The target is in today's money and so is the answer. If the goal is a long way off and the thing you are buying will get more expensive, either raise the target or use a return figure net of inflation and read the result as real terms.
Should I clear debt before saving?
Usually, if the debt costs more than the savings earn — and card debt always does. The exception is a small emergency fund, which is worth having first precisely so that a surprise does not put you back on the card.
What if I already have enough to get there?
Then the answer comes back as nothing needed: the starting balance reaches the target on its own within the period. Shorten the time or raise the target to see what the money supports.