Saving 101 Chapter 05: Calculate Your Savings Needs Read the Article Open Share Drawer Share this:Click to share on Twitter (Opens in new window)Click to share on Facebook (Opens in new window)Click to share on Tumblr (Opens in new window)Click to share on Pinterest (Opens in new window)Click to share on LinkedIn (Opens in new window) Written by Mint Published Jul 27, 2022 - [Updated Jul 28, 2022] 9 min read Advertising Disclosure The views expressed on this blog are those of the bloggers, and not necessarily those of Intuit. Third-party blogger may have received compensation for their time and services. Click here to read full disclosure on third-party bloggers. This blog does not provide legal, financial, accounting or tax advice. The content on this blog is "as is" and carries no warranties. Intuit does not warrant or guarantee the accuracy, reliability, and completeness of the content on this blog. After 20 days, comments are closed on posts. Intuit may, but has no obligation to, monitor comments. Comments that include profanity or abusive language will not be posted. Click here to read full Terms of Service. Save more, spend smarter, and make your money go further Sign up for Free The previous chapters of our savings series explained various ways for you to start saving money and where to keep your funds. But once you feel ready to begin building your funds, the question of how much you should save starts springing into your mind. Knowing how much you need can help you set milestones and decide how to allocate appropriately to each of your goals. In this chapter, we’ll cover how to calculate your savings needs, setting monthly savings goals, using a savings goal calculator to help you plan, and some basic savings terminology that will help you through the process. Keep reading or use the links below to navigate the post. What is Your Monthly Savings Goal?How to Use a Savings Goal CalculatorSavings Terminology You’ll Need to KnowHow to Calculate Interest on a Savings Account What is Your Monthly Savings Goal? In order to build your required savings over time, you need to determine your initial monthly savings goal. By deciding how much money you want to put into savings, you can learn how to budget, plan, and control your expenses. You can learn more about how to figure out how much money you should save each paycheck in Chapter 2. This not only helps you with controlling your spending, but also goes a long way towards achieving your goals over time. From buying your new car to making the down payment for your home, this can be applied to a variety of life milestones for you and your family in the long run. Typically, your monthly savings goal is an amount that you can easily afford to take out from your income after essential expenses and taxes. This way, you don’t pressure yourself into saving an amount that brings unnecessary problems to your plate. How much you’ll want to save will also depend on your actual monthly income, your crucial expenses, and your outstanding debt. To have a monthly savings goal that is both realistic and advantageous, you may follow the tips outlined below. Adjust according to your comfort. Try to stick close to saving 20% of your paycheck—based on the 50/30/20 rule—but adjust as much as you have to according to your income and expenses. Make a budget for easier financial management. Budgeting for your living expenses, life goals, and outstanding responsibilities allows you to draw up a monthly savings goal without much hassle. Pay off debt when possible. If you have a small outstanding debt with a high interest rate, like your favorite rewards credit card, put some of your initial savings contributions towards paying that off first. This helps you save your earnings from covering interest payments in the future. Even the smallest of amounts make a difference. After calculating your cost of living, don’t feel disheartened if you can only save 5% of your monthly income. As you take care of your responsibilities and grow your income, this amount may increase in the future. Keep your goals in mind. It’s easy to think about fulfilling your short-term spending goals while putting savings on the backburner. But being mindful about your larger objectives and bigger purchases can keep you motivated for consistent savings. At the end of the day, you may want your monthly savings amount to be something that you can easily deduct from your paycheck without affecting your essential financial obligations and overall comfort. This means that your savings amount can be anything that works for you. Again, remember that even a small contribution goes a long way, especially when you stick to it. How to Use a Savings Goal Calculator Once you are clear about your savings goals, you may turn to a calculator that helps you set your expectations and manage your finances. This step is tied to your choice of a savings account. If you don’t have a savings account, you may choose to pick one with a bank or a credit union before starting with the calculations. You may learn more about which savings account to choose in Chapter 4 in our series. There are several calculators available to assist you in managing your savings. This calculator for putting together your savings from the U.S. Securities and Exchange Commision (SEC) is a good example of what you can expect from these tools. Taking the example of the Investor.gov calculator, these tools typically comprise the following fields. Savings Goal This field refers to the final amount that you want to accumulate through your efforts. By setting and achieving goals that cover your short-term and long-term needs, you can come up with a savings target that is the right fit for you. Initial Investment This outlines the money that you have on hand to invest now. This could be the smallest amount that you can muster up and it should still be included. For instance, this could be the first savings deduction that you make from your paycheck. Growth Over Time This field outlines the duration for your savings to grow. This factor is calculated in years to make sure that you have sufficient time to complete each savings effort. You can enter the number of years based on when you want to achieve this goal. You may need to adjust later. Estimated Interest Rate In order for your savings to grow past your monthly contribution, you may want to put your funds in a profit-bearing account. You can choose between different high yield savings account options to find the ideal match for yourself. Afterwards, you can enter the account’s estimated annual interest rate in this field. Compound It This refers to instances when the interest on your savings account is compounded. This is where the savings account allows you to earn profits over your initial deposit as well as the interest that you accumulate over it. Depending upon the account that you have, you can choose daily, monthly, semiannual, and annual compounding frequencies while calculating your target. Afterwards, you can hit “Calculate” to see your results. This provides you with the estimate of how much you have to contribute in order to finally reach your goal amount within the outlined timeframe. This helps you make a financial plan according to these metrics. In turn, you can get one step closer to achieving your savings goal. For added convenience, you can also use this calculation process for multiple objectives. For instance, if you want to save for an international trip while also putting money away for your child’s education, you can use different calculations to get the respective contribution amounts. This way, you can ensure to build the financial habits you need to achieve multiple goals simultaneously. Savings Terminology You’ll Need to Know When you are building savings, you may have to shop for a suitable savings account. During this process, you may need to calculate savings through multiple avenues. As you continue on this journey, there’s a high chance that you would stumble upon some financial jargon. Some of these terms are self-explanatory, while others are a little more nuanced, especially for first-time savers and investors. This could become an obstacle when you’re trying to find the best ways to grow your savings. To make sure that you can make educated decisions throughout the process, we’ve put together an overview of common savings terms. Deposits: Any money transfers or contributions that are made to your savings account.Starting Balance: The amount that you have available when you open your savings account.Ending Balance: The amount listed at the end of an account statement, showing what you have in your account at the end of the period—usually the close of month.Monthly Contributions: Any money you’ve added to your savings account each month. Depending on your goal, you can use specific calculators to help you determine your monthly contribution such as a retirement savings calculator or a home savings calculator. Initial Investment: How much money you put forward when you launch your savings plan. Sometimes a specific amount is required to open a savings account.Years to Grow: The amount of time that you’re going to give your savings plan to come to fruition.Compound Interest: The interest you earn on top of the interest that you have already earned through your original deposit.Annual Interest Rate: The rate at which your interest and fees are calculated on a yearly basis.Annual Percentage Yield: The interest that is offered on savings accounts. This also factors in compounding interest and helps you estimate how much profit you can earn over time. How to Calculate Interest on a Savings Account Whether you are making a budget template or putting together ideas for a dream vacation, you need to tread carefully about making your savings plans. That is where the importance of calculating interest on a savings account comes in. Apart from using a calculator for savings objectives, you can utilize the following steps to manually calculate your savings account interest. Note down the annual savings rate offered by your savings account. Divide the savings rate by 100 to get a decimal figure. If you have more than a year of savings timeline, multiply it by the decimal figure. Put aside your starting balance figure. Multiply it with the decimal savings rate. This is an example of how the process looks like with actual numbers. Annual savings rate: 0.1%Annual savings rate divided by 100 : 0.01 Savings timeline: 3 YearsSavings timeline multiplied by 0.01 : 0.03Starting balance: $1,000Starting balance multiplied by 0.03: $1,030 This gives you an idea of how much interest you can earn on your original investment. Since compound interest and monthly contribution calculations are more complex, you can use a savings goal calculator to get useful estimates quickly. Just keep in mind that using all the correct values can impact the accuracy of your results. In Conclusion Regardless of how much money you want to save, calculating your savings goals is an incredibly important step of the process. Above and beyond helping you get direction for what you’re trying to achieve, it also allows you to manage your spending and savings for the foreseeable future. If you have any short-term or long-term investments in mind, you may also use an investment calculator to get more clarity about your expectation of returns. This allows you to make an informed decision about your goals. This concludes our fifth chapter in our savings series. Next you can read about managing the progress of your savings goals in Chapter 6: How to Track Your Savings. Note that you can also use the Mint app to track your budget and savings goals right from your phone. Sources: Investor.gov Save more, spend smarter, and make your money go further Sign up for Free Previous Post Chapter 06: How to Track Your Savings Written by Mint Mint is passionate about helping you to achieve financial goals through education and with powerful tools, personalized insights, and much more. More from Mint Browse Related Articles Saving 101 Chapter 01: How to Start Saving Money Saving 101 Chapter 06: How to Track Your Savings Saving 101 Chapter 02: How Much of My Paycheck Should I Save? Retirement 101 Chapter 03: How to Create a Retirement Budget Saving 101 Chapter 04: Checking vs. Savings Account Budgeting 101 Chapter 10: Set Up Your Mint Goals Saving 101 How Much of Your Paycheck Should You Save Each Month? Housing Finances Chapter 03 : How to Save for a House Investing 101 How to Pay Yourself First in 3 Easy Steps Saving 101 Chapter 03: Which Savings Account Should You Choose?