How the monthly number is worked out
You are solving for the payment in a future-value equation. Two things get you to the goal: the money you have already saved, which keeps growing on its own, and the monthly deposits you are about to start making. Whatever the first one does not cover, the second one has to.
Where i is the monthly rate (your annual return divided by 12) and n is the number of months. Deposits are assumed to land at the end of each month, which is the conservative convention — if you save at the start of the month you will arrive slightly early.
What return should you put in?
This is the input people get wrong, and it matters more than any other. The honest answer depends on when you need the money:
- Under 2 years — use the rate on a high-yield savings account or a short CD, and nothing riskier. A goal this close cannot survive a bad year in the market.
- 2 to 5 years — something conservative. A mix of savings and short-term bonds. Modest, predictable, boring.
- Over 5 years — you can reasonably use a long-run stock market assumption, but treat it as an average across good and bad years, not a promise about any single one.
- Not sure? Put 0%. The number that comes out is what you would need with no help from returns at all. If you can hit that, everything else is upside.
The number came out too high. That is useful information, not a failure. You have exactly three levers and no others: save more each month, give yourself more time, or shrink the goal. Push the deadline out by a year and watch what happens to the monthly figure — it usually falls further than people expect, because you are adding both deposits and compounding.
Make it happen automatically
A savings goal fails for behavioural reasons far more often than mathematical ones. The fix is the same every time: set up a standing transfer for the day after you get paid, into an account that is not the one you spend from. Money you never see in your checking balance is money you do not have to resist.
And separate your goals. One pot labelled "savings" with a house deposit, a holiday and an emergency fund in it will get raided for the holiday. Three pots with three names will not.
Before you save for anything else
Two things come first, in this order. Build a small emergency fund so an unexpected bill does not undo months of progress. Then clear any debt costing more than your savings will earn — paying off a card at 22% is a guaranteed 22% return, which no investment can promise. The debt payoff calculator will tell you how long that takes.