How to Calculate Monthly Savings to Reach a Goal

The Savings Goal Formula

To find the required monthly contribution to reach a savings goal, given a fixed interest rate and time horizon, the formula is derived from the future value of an annuity:

Where:

• PMT = Required monthly payment (contribution)
• FV = Future value (savings goal amount)
• r = Monthly interest rate (annual rate ÷ 12)
• n = Total number of months

A Worked Example

Goal: Save $20,000 in 3 years, with a 4.5% annual interest rate (typical of a high-yield savings account in 2024–2025).

1. Monthly rate: 4.5% ÷ 12 = 0.375% = 0.00375
2. Total months: 3 × 12 = 36
3. PMT = 20,000 × 0.00375 ÷ [(1.00375)^36 − 1]
4. PMT = 75 ÷ [1.1442 − 1] = 75 ÷ 0.1442 = $520.25/month

Total contributed: $520.25 × 36 = $18,729. Interest earned: $20,000 − $18,729 = $1,271.

The Effect of Starting Early

The same $20,000 goal at 4.5% with different time horizons shows how starting earlier dramatically reduces the required monthly contribution:

Common Savings Goals and Benchmarks

• Emergency fund: 3–6 months of essential expenses. This is the standard recommendation from financial planners and the Consumer Financial Protection Bureau (CFPB).
• Down payment (home): 20% of purchase price to avoid PMI. On a $300,000 home, that is $60,000.
• New car: Saving the full amount avoids interest entirely. A $25,000 car financed at 7% for 5 years costs $4,994 in interest.
• Retirement (rule of thumb): Save 15% of gross income starting in your 20s, per Fidelity Investments' research-based guidelines.