Working Backwards From a Target
Most saving advice starts from what you can spare and asks where it gets you. Starting from the goal instead answers a more useful question: what does this actually require each month, and is that a number you can live with?
This calculator works backwards from a target amount and a deadline to the monthly contribution needed, taking any interest earned along the way into account.
How to Plan Toward a Goal
Three inputs give the monthly figure, and the fourth changes how much of the work the money does for you.
- Enter the amount you are aiming for.
- Enter any amount you have already saved toward it.
- Enter the deadline, either as a date or as a number of months.
- Enter the interest rate you expect to earn. For a goal under two years this barely moves the result; over ten years it does a great deal of the work.
- Read the monthly contribution required. If it is not achievable, adjust the deadline rather than abandoning the goal, an extra six months often brings the figure within reach.
- Recalculate when circumstances change, since falling behind early is much easier to correct than falling behind late.
How Much the Interest Rate Matters
For a short goal, the rate is almost irrelevant. Saving 6,000 over two years takes 250 a month at zero interest and about 240 at 4 per cent, a difference of ten. The money has not been invested long enough for growth to contribute meaningfully, which is why a savings goal within a couple of years is really a budgeting problem rather than an investing one.
Over long horizons the balance shifts entirely. Reaching 100,000 in twenty years needs 417 a month at zero interest but only about 240 at 6 per cent, because more than 40 per cent of the final balance comes from growth rather than contributions. The length of the horizon, not the rate itself, is what decides whether interest is a rounding error or the main engine.
Monthly Contribution for a 50,000 Goal
What it takes to reach 50,000 from zero, at different horizons and rates.
| Horizon | At 0% | At 3% | At 6% | Growth share at 6% |
|---|---|---|---|---|
| 3 years | 1,389 | 1,327 | 1,268 | 9% |
| 5 years | 833 | 773 | 717 | 14% |
| 10 years | 417 | 358 | 305 | 27% |
| 15 years | 278 | 220 | 172 | 38% |
| 20 years | 208 | 152 | 108 | 48% |
At twenty years and 6 per cent, nearly half the final balance comes from growth rather than from what you put in. At three years it is under a tenth, which is why the same rate is worth chasing in one case and barely worth considering in the other.
Matching the Account to the Horizon
A goal within two or three years generally belongs in cash or something equally stable, because the risk of a market fall arriving just before the deadline outweighs the modest extra return. A house deposit needed next spring should not be exposed to something that can drop twenty per cent in a quarter.
Longer horizons can tolerate volatility, since there is time to recover from a bad year, and over ten or twenty years the difference between a cash rate and an invested return compounds into a very large gap. Where the deadline is firm and the amount is not negotiable, the safer account is usually the right answer regardless of what the projection says a riskier one might produce.