Budgeting can be a daunting task, but fortunately there are many online tools available that can help. Online savings calculators, for one, can help you build a savings plan to turn your financial dreams into attainable goals and determine not only how much money to save each month, but also how to earn the best return on what you put away. Here’s a look at how using one can boost the chances you’ll reach your savings target.
Help establish a monthly savings plan
Online savings calculators allow you to determine how much money you need to save each month—and for how long—to reach a desired savings goal. To use a savings calculator effectively, you need three numbers: your initial savings (If this is a new savings initiative in a new account, how much will you deposit to start? If you are depositing to an existing account, what’s your current balance?), the amount you are planning to save each month and your savings goal. The calculator will use your initial savings and expected monthly contribution to calculate how long it will take to reach your goal.
Part of the fun is playing with the numbers. For example, add $100 to your monthly savings and see how much faster you will arrive at your goal. Alternatively, double your goal and see how much longer it will take you to get there.
Show the impact of compounding interest
If your money is in a savings account, it is likely earning interest. Over time, interest payouts that remain begin to compound, meaning you earn interest on previous interest earnings. Compounding interest can have a significant impact on how quickly your savings will grow, and many savings calculators factor this into the growth of your money.
For example, a savings calculator can show you how much faster you will reach your savings goal if your money is earning 1.00% APY versus 0.10%. The effect of a higher interest rate can be substantial long-term, and earning money on the money you’re saving can be a huge motivating factor to save more—or at least stick to your savings plan.
Help plan for large purchases
Sometimes it’s easier to save if you are saving for something in particular. Whether it’s a $20,000 down payment or a $2,000 vacation to Mexico, a savings calculator allows you to translate your dream into an actionable savings strategy by calculating exactly how much money you need to save per month or year to reach your savings target.
If, for example, you are hoping to buy a house in five years, you can use the Discover savings calculator to figure out how much you should set aside each month to accumulate enough savings for a down payment.
A savings calculator is one tool in your financial arsenal. It can help you determine your goals and learn what your money can do for you. It can break down even the most difficult-to-reach goals and show how they can be accomplished. Ultimately, the discipline required to budget effectively is still key, but it’s easier to stay focused when you feel in control of the process.