What Does it Cost to Reach Your Financial Goal? (An Awesome Tool!)
The Contribution Calculator automatically computes the future value of monthly payments. This tool is extremely valuable when you want to know how much to invest for a financial goal, like a down payment on a house, nest egg, etc.
After you have determined the final value of your goal (you can calculate the amount you need for your goal by using the Freedom Calculator) you can use this tool to see how much money you need to save on a monthly or yearly basis to achieve that goal.
To use this calculator simply plug in;
- an initial investment amount – the savings/investments you already have for your goal or the first amount you plan to invest towards your goal,
- monthly addition – the amount you decide to invest each period toward your goal,
- annual interest rate – 7% is typically a conservative estimate for the annual return on stocks and real estate and;
- number of years – the number of years you plan to deposit money toward your goal.
After you have all the information hit calculate. “But wait, I don’t know the monthly addition amount, that’s what I’m trying to calculate,” you’re probably thinking. You have to use this calculator backwards, so start with any monthly addition amount, say $500/month. If the calculated value isn’t near your goal then adjust the monthly addition amount. If the monthly addition amount starts to climb out of your budget begin to adjust the return or number of years until the calculated value is relatively close to your goal. If that doesn’t work then you need to find a way to have a more realistic goal or make more money, harsh but it’s true.
Once you have an acceptable calculated future value from the Contribution Calculator, you will have the necessary time frame and monthly additions needed to reach your goal.
The final step is investing those equal payments into an avenue that gives you the rate of return (ROR) you desire.