A savings goal has a date hiding inside it. The date depends on what you have, what you add, and the rate the account actually pays. Using a stock-market return for cash you cannot afford to lose makes the date look closer than it is.
Deposits do the early work
Each month the balance earns one-twelfth of the annual rate, then your contribution is added. Early on, the balance is mostly what you put in. Later, growth matters more because it is earned on a larger base. For a goal a few years away, the contribution is the lever. The rate is not.
The three-year figure is the monthly deposit that hits the same target sooner at the same rate. It is a pace, not a requirement. If you are already saving more than that, you are ahead of a three-year plan.
Match the rate to the account
An emergency fund and a house fund that you will spend soon belong in savings, not in a portfolio you might have to sell at a loss. Use the yield on the account where the money will sit. A high-yield savings rate is much lower than a long-run stock return, and the money is there when you need it.
Interest in a taxable account is income. This date is slightly optimistic if the account is not tax-advantaged. That gap is small next to the gap created by skipping a month of contributions.
Name the target
A vague “savings” number hides two goals that should not share one pile. An emergency fund is a number of months of expenses. A down payment is a date and a price. Split them, then automate the transfer on payday so the monthly amount is not a decision you remake every month.
If you already have more than the target, the time to the goal is zero. Raise the target, or use the investment growth calculator for a longer horizon where compounding is the point.
How to use the savings goal calculator
The date is how long the balance takes to reach the target when you contribute every month and the return compounds monthly. The three-year figure is the contribution that hits the same target sooner. If you are already saving more than that, you are ahead of a three-year pace.
- Enter what you have saved, what you add each month, and the target.
- Set a return that matches the account. A savings account is not a stock-market return.
- Read the time to the goal, then the monthly amount that would finish it in three years.
- If the date is too far off, raise the monthly amount before you raise the assumed return.
How the math works
Compounding
Each month the balance earns one-twelfth of the annual rate, then your contribution is added. Early months are mostly your deposits. Later months earn more because the balance is larger.
The three-year shortcut
The calculator solves for the monthly deposit that grows today’s balance to the target in 36 months at the same rate. That is a pace, not a requirement.
Choosing a rate
Use a rate close to the account you will actually use. A high-yield savings rate is much lower than a long-run stock return, and the money is safer. Using a stock return for an emergency fund makes the date look too soon.
From $12,000 to $50,000
The defaults start at $12,000, add $600 a month, and earn 4.2% a year.
The goal is about 54 months away, or 4 years and 6 months. Reaching it in 3 years would take about $950 a month.
Terms worth knowing
- Compound interest
- Interest earned on prior interest, not only on what you deposited.
- Contribution
- The new money you add. It is separate from the growth.
- Target
- The balance you want. The clock stops when the projection crosses it.
- Annual return
- The yearly rate, applied here as a monthly compound rate.
What to do with the number
Name the goal. A house fund and an emergency fund should not share one vague target.
Automate the transfer on payday so the monthly amount is not optional.
If the goal is less than three years away, prefer a savings yield over a market return.
Raise the contribution when income rises. The rate is the part you do not control.
Questions people ask
What this leaves out
The return is constant and compounds monthly.
Contributions are made at the end of every month.
No money is withdrawn along the way.
Taxes on interest are not subtracted.
These figures are estimates to help you understand the tradeoff. They are not tax, legal, insurance, or investment advice. A fiduciary can look at the same numbers in the context of the rest of your plan.