How Much Should I Save? + Savings Calculator

How much should I save is a question that often pops up. It’s easy to answer. Imagine this: You’re carefree without a money worry in the world. You’re smiling, and the sun is beaming right there with you. Next week you’ll be upgrading your iPhone. Oh, yea and your 401k is maxed out. How did this happen?

I’ll tell you how this is going to happen to you too. I’ll let you know how to go from fearing your expenses to conquering them. The savings calculator will help you plan for your goals and adjust. After reading this article, you never have to ask how much should I save?

And you get a savings calculator in the end!

Why setting goals might just save your life

You need goals in your life. Not just financial goals. Without goals, you’re adrift on the sea without purpose, without a destination. How you ever heard of a depressed fanatic or zealot? We get disillusioned when faced with a life without meaning. What you aim at becomes possible.

Goals give you purpose. Goals let you dream. You need goals.

Let’s talk about setting financial goals in the context of answering how much should I save. This is the easy bit of setting goals. It even gets easier with our savings calculator.

There are two types of financial goals:

  • Short-term goals are goals within 1-5 years.
  • Long-term goals are goals beyond five years.

Why the distinction?

Because when you plan for financial goals, you need a portfolio that can help you achieve the financial goal. A portfolio with a 10-year horizon can bear more risk than a portfolio built for a 3-year goal.

Typically, the longer the time horizon of the goal, the more stocks, and fewer bonds get added to the portfolio. This is because stocks outperform bonds in most cases. Stocks are also riskier. They have more significant swings in price.

How much should I save is, therefore dependent on your timeframe.

You should focus on these two things when saving for your dream.

There are three inputs to a good savings plan:

  1. The actual dollars that you save
  2. Your yearly investment return on those dollars
  3. Time

You can control 1 and 3, but not 2.

You know how much you can save for your goal. That new car costs $4500. You know how much time is left until you reach your goal (right?). You’re looking at replacing the car in 3 years. But you don’t know the return on your investments.

Time is the absolute most important of the 3. If we have enough time, we could save up to buy anything.

Risk and return go hand in hand. You cannot have a safe investment yielding 10% a year. It is not possible.

It is for this reason that you need to categorize your goals into short-term and long-term goals. You need to be able to adjust the risk level of your savings to match the goal.

Here’s how you become a master financial goal setter

Make time your most important ally. Use a savings calculator.

How much should I save is joined at the hip with the question of how much time do I have?

The more time you have, the less you need to save each month because:

  1. You can have compounding interest work in your favor. You receive interest upon interest upon interest for a longer time.
  2. The goal is spread out over a longer timeframe making your periodic savings more manageable.

The faster you can identify your financial goals, the better!

The easy way to afford anything in the world

The savings calculator built-in Google sheets will help you in figuring out how much you should save for your next goal.

There are two tabs on the savings calculator. The first tab lets you answer the question of how much should I save for a goal.

The second tab on the savings calculator is for the advanced and lets you define multiple goals at different return levels. I have a forthcoming post on how to completely geek out on savings and make everyone, even Dave Ramsey look like a newbie.

So how much should I save? What about the return, what should I expect?

  1. If your savings goal is short-term, your primary savings should consist of cash or CDs or short-term bonds. If your savings goal is closer to 5 years than one year, you can increase your exposure to longer-term bonds such as Vanguard Total Bond Market ETF (Ticker symbol: BND)
  2. If your savings goal is Long-Term, you should take a look at our portfolios. They offer a wide range of risk vs. return.

Remember: The best portfolio is one you stick with!

Why not all financial goals are created equal

As you begin setting financial goals, you realize that some goals are way more important than others. In popular speak, there is need to have goals and nice to have goals.

Need to have goals are those goals that will severely degrade your life or bring significant imbalances into your life if they are not met. If these goals are short-term, I would minimize the investment risk as much as possible. That means keeping to short- and medium-term bonds without adding any stocks to that particular savings portfolio. I would consider a 50th-anniversary celebration in the “need to have” category and would not take much investment risk. My savings would go into CDs and a short-term bond fund.

Nice to have goals are just that, nice to have, e.g., a new iPhone in 5 years. I don’t mind introducing a small amount of investment risk when saving for these types of goals. My money would go into a bond fund such as Vanguards BND ETF. Note this is still very low risk in the investment world!

Examples of how to use the savings calculator to answer how much should I save?

Let’s take two examples to demonstrate the power of the savings calculator:

Example 1: Short-term goal using the savings calculator

I’m going to need a new bike in 4 years. I like bikes, so I’m planning on buying one that will last the next ten years. The one I want costs $1500.

It’s a short-term goal with a “nice to have” sticker on it. If I have to wait another six months, it won’t kill me. I’m going to put my saving in an aggregate bond fund such as Vanguard BND ETF.

How much should I save if I want my new bike? Here’s what it looks like in the savings calculator:

[Savings Calculator](/images/2022/How-Much-should-I-Save-% E2%80%93-Savings-Calculator-pe.png)

Example 2: Long-term goal to demonstrate the power of the savings calculator:

I want to get a house within the next eight years. The down payment is $40,000. I’m willing to take a fair amount of risk since it is in 8 years. I’ll build a failsafe into my savings plan by over saving. I’ll save $5000 more than I need.

Looking at the portfolios on, I’m going with a 60/40 portfolio. That is a portfolio consisting of 60% stocks and 40% bonds. The returns for that portfolio in the last ten years have been 7.26% percent.

How much should I save if I want my down payment ready in 8 years? Here’s what it looks like in the savings calculator:

![Savings calculator Long-Term goal]( E2%80%93-Savings-Calculator.png)

You can find the savings calculator here. Be sure to go to file > make a copy, to be able to make changes.

The power of “saving on savings” through investing

In the first example, I need to save $364 a year to get to my goal of $1500. That’s $1 a day according to the savings calculator – I think I can make that!

But look at what happened! Because I put my saving in a bond fund that is expected to yield 2%, I’m effectively getting a 2% discount every year on my savings! Wow!

Here’s the math:

Savings goal: $1500

Actual saved: $364 x 4 = 1456

Total saved on savings = 1500 – 1456 = $44

That may not seem like a lot, but if you have many goals, it adds up, and it is free money.

But wait! Look how much I saved on savings on my down payment:

Savings goal: $45000 (remember I over saved to compensate for the higher portfolio risk)

Actual saved: $4345 x 8 = $34760

Total saved on savings: $45000 – $34760 = $10240 (!)

Now, this is a meaningful amount of money. And all I have to do is save $11 daily according to the savings calculator.

The takeaway from using the savings calculator

  1. If your goal timeframe is short, you need to save a lot more by “yourself,” and you need to take a lot less risk. You don’t get a lot of free money.
  2. If your goal timeframe is long, the compounding effect will help you save a lot more because you can take more risk over a longer timeframe.

To put it another way: You get hit twice as hard if you fail to plan and get rewarded twice as much if you can look ahead.

Short-Term planning – expensive

Long-term planning – cheap

How much should I save = how good am I to plan!

Look ahead!

Use the savings calculator here.


The above examples do not take fees nor commissions into account when investing your money. The returns mentioned are also hypothetical as those were the returns from the past and NOT the returns you will experience in the future. They are the best guess we have, however! Sometimes the commissions will eat into your “saving on savings.”

Also, consider taxes. You might have to pay capital gains tax on your returns, depending on your holding period.


You’ve just been introduced to the saving on savings principle. To answer the question of how much should I save requires that you have a goal and some number:

  1. The price of the goal
  2. The timeframe of the goal
  3. The expected return of the portfolio that will support your goal

The number can be plotted into the savings calculator and will give you an answer.

Now that you have begun your savings journey, what are you going to save up for?

Which portfolio is suitable for your savings target?

Sign up for our newsletter to get more great tools and advice on how to combine investment portfolios with personal finance.

If you’re unsure how to get started in investing, be sure to read our article How to invest money – 5 simple steps that work for anyone.