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MasterMath

Savings Goal Calculator

To reach 20,000 in ten years starting from 2,000 at 5%, you need 107.58 a month. You put in 14,910 and the interest supplies the remaining 5,090.

Currency and number format for

You need to save each month

—

You need to save each month—
Total out of your own pocket—
What the interest contributes—
Number of payments—
Which is, per day—

How this was worked out

    The formula

    payment = (goal − PV of what you have) × r ÷ ((1 + r)^n − 1)

    Where it comes from

    This works backwards from the target. It first grows what you already have, then works out the regular payment whose compounded total covers the gap. The interest does part of the work, and the longer the term the bigger that part gets.

    How to work it out by hand

    1. Grow what you already have to the end of the term
    2. Subtract that from your goal to find the gap
    3. Divide the gap by the accumulation factor for the number of payments
    4. The result is the amount you need to put in each month

    What is worth knowing

    The interest share is the number worth watching, because it shows what time is actually doing for you. Over ten years it covers a quarter of this goal; over twenty-five it would cover more than half. Two caveats. The return is assumed constant, and real markets are not — for anything under five years, plan as though the rate were near zero, because you cannot rely on a recovery arriving before your deadline. And this is a nominal figure: if the goal is a house deposit, the house will also have got more expensive, so raise the target by roughly the inflation you expect.

    Frequently asked questions

    What return should I assume?

    For money you will need within five years, assume close to nothing and use a savings account. For longer horizons, a diversified portfolio has historically returned around 7% before inflation, but never smoothly.

    What if I already have enough?

    The calculator says so instead of giving you a payment: with what you have and that rate, the goal is reached without adding anything.

    Should I adjust the goal for inflation?

    Yes, if the goal is a real purchase years away. A 20,000 deposit today is not a 20,000 deposit in ten years.

    Is it better to save monthly or in one lump?

    A lump sum earlier beats the same money spread out, because it compounds for longer. Monthly saving wins on the thing that actually matters, which is whether you keep it up.