How the Savings Goal Calculator Works

Summary

A savings goal calculator answers one of two questions: “How much do I need to save each month to reach my target?” or “How long will it take to reach my target at a fixed monthly contribution?” Both use the future value of an ordinary annuity formula with monthly compounding.

How it works

The calculator has two modes:

Mode 1: Monthly contribution needed

Given a savings target, current savings, time horizon, and expected annual return, the calculator solves for the monthly payment (PMT) that — combined with the growth of your existing savings — will exactly reach the target.

Mode 2: Time to reach goal

Given a savings target, current savings, fixed monthly contribution, and expected annual return, the calculator simulates month-by-month growth until the balance reaches the target.

Both modes assume:

• Monthly compounding — interest is applied once per month
• Ordinary annuity — contributions are made at the end of each month (the standard assumption)
• Constant return — the annual return rate is fixed for the entire period

The formula

This formula combines two components:

1. Future value of current savings: PV × (1 + r)^n — what your existing savings will grow to
2. Future value of annuity: PMT × ((1 + r)^n − 1) / r — what your monthly contributions will grow to

Setting their sum equal to the target and solving for PMT gives the formula above.

When the return rate is 0%, the formula simplifies to: PMT = (Target − PV) ÷ n

Worked example

Inputs explained

• Savings goal — your target amount. Could be a house deposit, emergency fund, car purchase, wedding, or any financial target.
• Current savings — what you already have saved towards this goal.
• Time horizon (mode 1) — how many years until you need the money.
• Monthly contribution (mode 2) — a fixed amount you can save each month.
• Expected annual return — the annualised growth rate on your savings. 0% for a cash savings account, 3–5% for a mix of cash and bonds, 5–8% for equities (historical average). This is a nominal rate (before inflation).

Outputs explained

• Monthly contribution (mode 1) — the amount you need to save each month to hit your target.
• Time to goal (mode 2) — how many years and months until your balance reaches the target.
• Total contributions — the sum of all monthly payments over the period (plus starting savings).
• Growth from returns — how much comes from compound interest rather than your own contributions.
• Savings growth chart — year-by-year visualisation of balance growth, split into contributions (teal) and investment growth (purple), with the target line shown in red.

Assumptions & limitations

• Constant return rate — real investment returns fluctuate year to year. The calculator models a fixed annual return. Over long periods, annualised returns smooth out, but short-term results can differ significantly.
• No inflation adjustment — all figures are in today’s money. A 5% nominal return with 2% inflation gives roughly 3% real growth.
• No tax — interest and investment gains may be taxable outside of an ISA or pension wrapper. The calculator does not deduct tax from returns.
• No fees — fund management charges (OCF) reduce your effective return. Subtract fees from the expected return for a more realistic estimate (e.g., 7% gross − 0.15% OCF = 6.85% net).
• End-of-month contributions — the formula assumes payments at the end of each month (ordinary annuity). Paying at the start of each month (annuity due) would result in a slightly lower required contribution.
• No withdrawals — the model assumes you never withdraw from the savings pot during the accumulation period.

Verification