Saving money is a common goal or financial desire. We all have something or more likely multiple things that we want to save up to purchase or do. We commonly save for things like
- Having financial security with an emergency fund
- An important life event such as a wedding or graduation
- A down payment for a house or car
- Starting a side hustle to increase income
- Paying for higher education
There are easy saving goals formulas to determine how much money you need to save and how long it may take you.
I’m going to share them with you and dive a little deeper. As you work on your goals, consider these formulas. Here are the formulas:
1) Emergency Fund:
Monthly Total Expenses x 9 = Total Saving
An emergency fund is 6-9 months’ worth of bills set aside in an easily accessible account. We know unexpected things happen. The proverbial rainy day occurs. You need cash set aside so that you have easily accessible money to handle the unexpected emergency.
If you are an entrepreneur, then save 12 months’ worth of bills. You may have higher risk, contractors or employees dependent on you, and may need to funnel some money into business operations.
Take a look at your situation and decide what is the best amount for your
- financial situation,
- employment status,
- employment stability, and
- risk tolerance.
2) Event Saving Goal:
Total cost / number of months remaining = Monthly Saving
Whether you are going on vacation, need to attend or put on an event, it should have its own budget. This is because it’s usually a large out of the ordinary expense.
Use this formula to determine how much money you need to save every month to afford the event. Of course if it’s something like a flexible vacation, then you can use a bit of algebra and base the formula off of how much you’re able to save per month:
Number of months remaining = Total cost / Monthly saving
The changed formula tells you how many months it would take you to save the money needed for the vacation, in other words, when you would be able to go on vacation.
3) High Cost Item Saving Goal:
Total Cost / Monthly Saving = number of months until purchase
Occasionally we also need to buy items that are costly. You likely also need to save up money in order to purchase a high cost and out of the ordinary item.
You can use the formula to determine when you would be able to purchase this item. The formula takes into account the amount of money you’re able to save each month towards purchasing the item. Therefore, dividing the total cost by this saving amount tells you the number of months it would take to save up to be able to purchase the item.
These saving formulas are a great way to make sure that you live within your means. When you have a specific goal in mind, it can be easier to stay on track and use cash not credit.
Saving is an important money management skill. Saved money is needed to help with financial stability and will be used for other financial goals.
While you can’t save your way to wealth, saving is an important tool and skill for building wealth.