How Much Should You Save Each Month? Work Backwards From Your Goal

The most useful savings number is not a percentage of your pay. It is the amount that gets a specific goal paid for by a specific date. Here is how to work it out in five steps, with examples you can check in our free calculator.

Original Farvenzo Times bar chart of the monthly saving needed to reach 50,000 starting from 2,000: at 5% growth, 697 over 5 years, 301 over 10, 171 over 15 and 108 over 20; with no growth, 800, 400, 267 and 200. — Original Farvenzo Times graphic, calculated with the Farvenzo Times savings goal calculator. Works in any currency.

The short answer

Take the amount you need, subtract what your current savings will grow to by then, and spread the gap over the months you have, allowing for the growth each deposit earns along the way. For example, 50,000 in 10 years, starting from 2,000 and earning 5% a year, needs about 301 a month. You would put in about 38,094 yourself, and growth would add about 11,906.

Our savings goal calculator does this exactly for your own numbers, in your own currency. The figures here work the same in dollars, pounds, euros or any other currency.

Step 1: Put a number and a date on the goal

A specific target is easier to stick to. The US Consumer Financial Protection Bureau's guide to building an emergency fund makes the same point: a clear goal helps you stay motivated, and an emergency fund is a good first one. In the UK, MoneyHelper suggests keeping at least three months' expenses as a reserve.

Write down what the money is for, how much it will cost and when you need it. A deposit for a home in four years, a car in three, a course next autumn: each becomes its own small plan.

Step 2: Decide whether the price is today's or tomorrow's

If your goal is a price you can see now, such as a car, a course or a deposit, it will probably cost more by the time you buy. A car costing 30,000 today costs about 34,778 in five years if prices rise 3% a year. Saving for that higher figure at 4% growth takes about 525 a month. Saving for the sticker price alone would suggest only about 452, leaving you short.

Our inflation calculator shows what a price today could become. The savings goal calculator can also raise the target for inflation automatically when you choose today's money.

Step 3: Pick a growth rate that suits the timeframe

The growth rate you assume changes the answer. For the 50,000 goal over 10 years, starting from 2,000, the monthly amount is 400 with no growth, about 358 at 2%, about 319 at 4% and about 283 at 6%.

Be cautious with money you need soon. Investments can fall in value, and a fall just before your deadline leaves little time to recover. For goals a few years away, use roughly what a savings account or deposit pays where you live. For longer goals, a higher assumed return comes with more uncertainty, so test a lower rate as well.

Step 4: Count what you already have

Money you have already set aside keeps growing, so it lowers the monthly amount by more than its face value. In the example, the 2,000 you start with grows to about 3,300 over 10 years at 5%.

Step 5: Give it time, or start small and step up

Time is the strongest lever. For the same 50,000 goal from 2,000 at 5%, you need about 697 a month over 5 years, about 301 over 10 years, about 171 over 15 years and about 108 over 20 years.

If the monthly figure feels too high, start lower and raise it each year as your income grows. If you raise it by 5% a year, you could begin the 10-year goal at about 244 a month, rising to about 378 a month in the final year.

Make it automatic

The CFPB describes automatic recurring transfers as often one of the easiest ways to save consistently. Set one up for the day after payday, and check your balance around transfer dates so you do not trigger overdraft fees. The same guide suggests putting part of any one-off money, such as a tax refund or a gift, toward your savings.

A quick sanity check

With no growth at all, the sum is simple: what you still need, divided by the months you have. For 48,000 over 120 months, that is 400. Growth brings it down to about 301, so in this example interest does close to a quarter of the work. If a calculator gives you a figure far below the no-growth amount, check that the rate you assumed is realistic.

Try your own numbers in the savings goal calculator. To see how a lump sum and regular saving grow without a fixed target, use the compound interest calculator. For a simple way to split your income first, read our three-bucket budget.

Educational content, not financial advice.

Sources

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