Savings goal calculator

Example: 20,000 EUR in five years at 3%

The goal is 20,000 EUR, the term 5 years or 60 months, and the expected rate 3% a year. The monthly rate is 3 ÷ 12 = 0.25%. The calculator uses the formula PMT = FV × r ÷ ((1 + r)ⁿ − 1).

Step by step: 1.0025 to the power of 60 is about 1.16162. Subtract 1 and you get 0.16162. The numerator is 20,000 × 0.0025 = 50. So 50 ÷ 0.16162 = 309.37 EUR a month.

Over 60 months you pay in 18,562.43 EUR in total (here the calculator uses the unrounded payment) and the remaining 1,437.57 EUR has to come from interest. If you check the result with the compound interest calculator, 309.37 EUR a month at 3% grows to 19,999.75 EUR in five years. The 25-cent gap comes from rounding the payment to the cent.

Term and rate: how much they move the payment

For a short goal the payment is set almost entirely by the term; for a long goal the rate starts to matter a great deal.

• 20,000 EUR at 3%: 392.69 EUR a month over four years, 309.37 EUR over five, 253.87 EUR over six.
• 20,000 EUR over five years at 6%: 286.66 EUR a month. Doubling the rate cuts the payment by only 22.71 EUR.
• 20,000 EUR over five years with no interest: 20,000 ÷ 60 = 333.33 EUR a month.
• 50,000 EUR over 15 years at 5%: 187.06 EUR a month, 33,671.43 EUR paid in and 16,328.57 EUR of interest. Without interest you would need 277.78 EUR a month.
• 50,000 EUR over 10 years at 5%: 321.99 EUR a month. Five fewer years means a payment 134.93 EUR higher.

When some of the money already exists

The savings goal calculator assumes you start from zero. If you already have savings, deduct them from the goal, but not at face value: include the growth they will earn over the term.

Example: the goal is 20,000 EUR in five years and 5,000 EUR is already in the account. In the compound interest calculator 5,000 EUR at 3% grows to 5,808.08 EUR in five years. The remaining goal is 20,000 − 5,808.08 = 14,191.92 EUR, which needs 219.53 EUR a month according to this calculator. That is 89.84 EUR less than starting from scratch.

A goal in future money, not today's

The calculator saves up exactly the amount you enter. If in five years you want to buy something that costs 20,000 EUR today, and prices rise by, say, 3% a year in the meantime, you will need 20,000 × 1.03⁵ = about 23,185 EUR. At the same rate and term that is 358.65 EUR a month, or 49.28 EUR more than planning on today's price.

If you assume the rate and price growth will be equal, there is a simpler shortcut: enter today's price and a 0% rate. The result of 333.33 EUR a month then roughly reflects purchasing power rather than a nominal amount.

Common mistakes and how to use the result

The interest earned row shows how much of the goal interest is expected to cover. The larger that share, the more sensitive the plan is to the rate assumption.

• An over-optimistic return. If you plan 50,000 EUR over 15 years assuming 5% (187.06 EUR a month) and the actual return is zero, the account holds 33,671 EUR at the end and you are about 16,329 EUR short.
• Expecting a high return on a short goal. 10,000 EUR in two years needs 404.81 EUR a month at 3% and 393.21 EUR at 6%. The difference is only 11.60 EUR, yet a higher-return investment can also be down after two years.
• Forgetting taxes and fees. The calculator treats the rate you enter as net, so enter the return after costs.
• Irregular saving. The calculation assumes an equal payment at the end of every month. If you save irregularly, split the yearly amount into months and check that the running total stays on track.