Savings Goal Calculator
How Can This Savings Goal Calculator Help?
A saving calculator demonstrates the power of saving a small amount of money to reach a goal.
This savings goal calculator is not about depriving yourself of life’s enjoyment. Rather, it helps you make deliberate choices and prioritize. Ask yourself:
- Is a latte everyday more important than achieving your entrepreneurial dreams?
- If you look back in a few years, will you regret not having set a savings goal today?
- How are you likely to feel when you reach your savings goal? Empowered? Confident?
People who set goals are more likely to get ahead. They are more likely to live a great life because they made smart choices.
How Can I Cut Discretionary Spending?
Calculators are nothing but tools and only good if you take action. To meet savings goals on the discretionary expenses you identified in the calculator above, here are two approaches:
- Don’t deprive yourself 100%. Example: cut your discretionary spending in half. This way you can still occasionally treat yourself while also contributing toward your savings goal.
- Use only cash — not credit cards — for discretionary items. Every week put cash for the amount you plan to spend on discretionary items into an envelope. When you’ve exhausted the cash that week it serves as reminder to stop spending. Financial guru Dave Ramsey advocates this envelope method.
How Much Should I Save Each Month?
Finance experts often recommend saving 20% of your gross income each month. But your plan depends on your savings goals.
Perhaps your long-term goal is to generate a million dollars or save for retirement. If so, you will need to save a lot to grow wealth.
But what if your goal is short-term? You just want to save enough to start a new business or put a down payment on a new storefront. Launching a business need not be expensive. For more information on how much money you will need to save to start your own company, run our startup cost calculator.
What Are Common Reasons for Not Saving?
People have a lot of reasons not to save each month, including:
- Low compensation – Low salary earnings make it harder to save.
- Too much car – Expensive car loans or leases make it all the harder to reach your goal.
- Overuse of credit cards – It is so easy to pay with plastic that people give in to temptation and overspend.
- Failure to budget – A budget helps track progress to reach your goal. Too many people don’t budget. They have no idea how they may be wasting money.
Do any of these reasons apply to you? What can you do to overcome them?
How Do I Meet Savings Goals?
Cutting spending is a huge part of your savings strategy. But the main mechanism to meet savings goals is to set up a savings account. Then make your savings plan automatic — put it on autopilot. There are several ways to do this:
- Create automatic transfers to a savings account. Transfer money into savings each week or month. Many banks offer automatic transfers. For example, Chase has an app called Autosave to set up automatic transfers.
- Split your direct deposit. Many direct deposit plans allow you to designate a contribution amount to go to savings. You’re less tempted to spend money that goes straight to a savings account.
- Save credit card rewards. If you use a credit card and regularly rack up cash back, make it part of your savings goal. Periodically transfer the cash rewards into savings.
- Save change. You can do this literally by putting excess coins in a jar. Periodically deposit coins to savings. Or use a special program such as Bank of America’s Keep the Change. It rounds up every purchase made using a debit card to a whole number, and transfers the difference to a bank account.
How Can I Grow My Current Savings?
Invest your savings in something with decent interest rates.
After you accumulate a sizable amount of money — say $1,000 — transfer your savings balance to a certificate of deposit (CD). CDs at an FDIC insured institution offer a higher interest rate than savings accounts.
CDs have another advantage: they charge a penalty on early withdrawal. Knowing you have to pay a penalty, you will be less tempted to withdraw your current savings early and use it for other purposes.
After accumulating larger amounts, look for other investments. Example: an investment in a mutual fund will pay a higher interest rate.