Is my math wrong? - How much should I save monthly?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
LiterallyIronic
Posts: 862
Joined: Sat Dec 05, 2015 10:36 am

Is my math wrong? - How much should I save monthly?

Post by LiterallyIronic » Wed Mar 14, 2018 11:23 am

I had previously ran the calculations in a spreadsheet I made, trying to figure out how much I need to save every month in order to reach my goal. Starting at $54,000 and wanting to be at $600,000 in 16 years. Using a 7% annual growth (seems like a typical stock market growth).

I had come up with about $1,400/month. However, this site: https://www.bankrate.com/calculators/sa ... lator.aspx
is estimating more like $1,250.

What is the correct figure?

alex_686
Posts: 4054
Joined: Mon Feb 09, 2015 2:39 pm

Re: Is my math wrong? - How much should I save monthly?

Post by alex_686 » Wed Mar 14, 2018 11:26 am

I am getting $1,234. I am compounding every month. If you are contributing every month than the math kind of demands that you compound every month as well.

mhalley
Posts: 6318
Joined: Tue Nov 20, 2007 6:02 am

Re: Is my math wrong? - How much should I save monthly?

Post by mhalley » Wed Mar 14, 2018 11:29 am

Last edited by mhalley on Wed Mar 14, 2018 11:45 am, edited 4 times in total.

bloom2708
Posts: 5011
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Is my math wrong? - How much should I save monthly?

Post by bloom2708 » Wed Mar 14, 2018 11:35 am

7% is quite optimistic.

Save $1,500/month and more in months where you have more to save. You might still fail to get to your goal or blow it away 2 years early.

Can't know. The sequence of the returns makes it difficult to predict. I guarantee your returns will not be 7%, 7%, 7%, 7%, 7%....
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

LiterallyIronic
Posts: 862
Joined: Sat Dec 05, 2015 10:36 am

Re: Is my math wrong? - How much should I save monthly?

Post by LiterallyIronic » Wed Mar 14, 2018 11:36 am

Both of those gave me $1,250.

mhalley
Posts: 6318
Joined: Tue Nov 20, 2007 6:02 am

Re: Is my math wrong? - How much should I save monthly?

Post by mhalley » Wed Mar 14, 2018 11:38 am

Sheessh, fat fingers. 1250 is right. Post corrected.
Last edited by mhalley on Wed Mar 14, 2018 11:43 am, edited 2 times in total.

alex_686
Posts: 4054
Joined: Mon Feb 09, 2015 2:39 pm

Re: Is my math wrong? - How much should I save monthly?

Post by alex_686 » Wed Mar 14, 2018 11:39 am

bloom2708 wrote:
Wed Mar 14, 2018 11:35 am
7% is quite optimistic.

Save $1,500/month and more in months where you have more to save. You might still fail to get to your goal or blow it away 2 years early.

Can't know. The sequence of the returns makes it difficult to predict. I guarantee your returns will not be 7%, 7%, 7%, 7%, 7%....
Yeah, but we need to start somewhere and while 7% is on the aggressive side it is not unreasonable. I think the OP is struggling right now with annualized verse compounding rates of return. Getting into sequence of return risk might be a advance topic beyond the scope of their question.

LiterallyIronic
Posts: 862
Joined: Sat Dec 05, 2015 10:36 am

Re: Is my math wrong? - How much should I save monthly?

Post by LiterallyIronic » Wed Mar 14, 2018 11:40 am

bloom2708 wrote:
Wed Mar 14, 2018 11:35 am
7% is quite optimistic.

Save $1,500/month and more in months where you have more to save.
Saving $1,500+ is quite optimistic. :D
I'm currently at $1,216 and trying to figure out if I can (and need to) bump it to $1,400.

Jon H
Posts: 108
Joined: Sun Jan 21, 2018 2:50 pm

Re: Is my math wrong? - How much should I save monthly?

Post by Jon H » Wed Mar 14, 2018 11:43 am

$1220 per month gets you to $600,841 in 16 years

=FV(0.07/12,16*12,-1220,-56000)
or
http://dinkytown.com/java/InvestmentVariables.html

But, as has been said by others, 7% is optimistic. Try running the numbers at 3-4% also so you have an idea of the lower end of the spectrum.
Consider gain and loss, but never be greedy and everything will be alright (fortune cookie)

magicrat
Posts: 521
Joined: Sat Nov 29, 2014 7:04 pm

Re: Is my math wrong? - How much should I save monthly?

Post by magicrat » Wed Mar 14, 2018 11:51 am

LiterallyIronic wrote:
Wed Mar 14, 2018 11:40 am
bloom2708 wrote:
Wed Mar 14, 2018 11:35 am
7% is quite optimistic.

Save $1,500/month and more in months where you have more to save.
Saving $1,500+ is quite optimistic. :D
I'm currently at $1,216 and trying to figure out if I can (and need to) bump it to $1,400.
If you post your budget I bet you'll get plenty of input on where to cut :)

miamivice
Posts: 961
Joined: Tue Jun 11, 2013 11:46 am

Re: Is my math wrong? - How much should I save monthly?

Post by miamivice » Wed Mar 14, 2018 12:03 pm

Jon H wrote:
Wed Mar 14, 2018 11:43 am
$1220 per month gets you to $600,841 in 16 years

=FV(0.07/12,16*12,-1220,-56000)
or
http://dinkytown.com/java/InvestmentVariables.html

But, as has been said by others, 7% is optimistic. Try running the numbers at 3-4% also so you have an idea of the lower end of the spectrum.
7% is fine for a 16 year period.

bloom2708
Posts: 5011
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Is my math wrong? - How much should I save monthly?

Post by bloom2708 » Wed Mar 14, 2018 12:04 pm

LiterallyIronic wrote:
Wed Mar 14, 2018 11:40 am
bloom2708 wrote:
Wed Mar 14, 2018 11:35 am
7% is quite optimistic.

Save $1,500/month and more in months where you have more to save.
Saving $1,500+ is quite optimistic. :D
I'm currently at $1,216 and trying to figure out if I can (and need to) bump it to $1,400.
Saving is hard. I know. You could use 12%. Then you will make it faster and can save less/spend more. :shock:
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

User avatar
CAsage
Posts: 954
Joined: Sun Mar 27, 2016 6:25 pm

Re: Is my math wrong? - How much should I save monthly?

Post by CAsage » Wed Mar 14, 2018 12:12 pm

bloom2708 wrote:
Wed Mar 14, 2018 12:04 pm
Saving is hard. I know. You could use 12%. Then you will make it faster and can save less/spend more. :shock:
There is no call to be rude. Saving is very hard, and every person is to be commended for a) having a plan and b) trying to save.

It would be more helpful to add that saving money will get a little easier each year, because of inflation and expected income raises.... so you can probably increase savings amount annually to help. That of course does mean $600K won't be worth what it is today....
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

stocknoob4111
Posts: 356
Joined: Sun Jan 07, 2018 12:52 pm

Re: Is my math wrong? - How much should I save monthly?

Post by stocknoob4111 » Wed Mar 14, 2018 12:29 pm

You could also use the backtest portfolio analyzer to simulate the market based on historicals and then you can adjust the contributions so the final amount comes out to $600k. Would give you a different perspective than simply using the 7% annual compounding.

User avatar
Pajamas
Posts: 6015
Joined: Sun Jun 03, 2012 6:32 pm

Re: Is my math wrong? - How much should I save monthly?

Post by Pajamas » Wed Mar 14, 2018 12:33 pm

The actual growth rate may make more of a difference than whether you invest $1250 vs $1400 monthly, especially as your total portfolio grows in value. Invest as much as you reasonably can now, increase that amount when your income rises, minimize investing and living expenses, let time work for you, and hope for the best. Don't agonize over $1250 vs $1400.

bloom2708
Posts: 5011
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Is my math wrong? - How much should I save monthly?

Post by bloom2708 » Wed Mar 14, 2018 12:49 pm

CAsage wrote:
Wed Mar 14, 2018 12:12 pm
bloom2708 wrote:
Wed Mar 14, 2018 12:04 pm
Saving is hard. I know. You could use 12%. Then you will make it faster and can save less/spend more. :shock:
There is no call to be rude. Saving is very hard, and every person is to be commended for a) having a plan and b) trying to save.

It would be more helpful to add that saving money will get a little easier each year, because of inflation and expected income raises.... so you can probably increase savings amount annually to help. That of course does mean $600K won't be worth what it is today....
You see, you can't read into that I was being rude because I used the little :shock: fellow. No rudeness intended. Saving is hard. I was trying to imply that 7% or 10% or 12%, nobody knows. Can't know.
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

LiterallyIronic
Posts: 862
Joined: Sat Dec 05, 2015 10:36 am

Re: Is my math wrong? - How much should I save monthly?

Post by LiterallyIronic » Wed Mar 14, 2018 12:50 pm

Pajamas wrote:
Wed Mar 14, 2018 12:33 pm
The actual growth rate may make more of a difference than whether you invest $1250 vs $1400 monthly, especially as your total portfolio grows in value. Invest as much as you reasonably can now, increase that amount when your income rises, minimize investing and living expenses, let time work for you, and hope for the best. Don't agonize over $1250 vs $1400.
Good advice. Right now I'm exactly in the throws of agonizing over $1250 (23.6% of gross) and $1400 (26.5% of gross). Maybe I should up it to $1323 (25% of gross) and just live with it.
magicrat wrote:
Wed Mar 14, 2018 11:51 am
If you post your budget I bet you'll get plenty of input on where to cut :)
I'm pretty sure I already know what they'll say. It's a matter of actually following through. Lifestyle inflation is killing us, along with higher-than-expected expenses after we bought a house last year. :x Maybe I should post our budget though, for motivational purposes.

User avatar
Hyperborea
Posts: 746
Joined: Sat Apr 15, 2017 10:31 am
Location: Osaka, Japan

Re: Is my math wrong? - How much should I save monthly?

Post by Hyperborea » Wed Mar 14, 2018 1:25 pm

LiterallyIronic wrote:
Wed Mar 14, 2018 12:50 pm
Pajamas wrote:
Wed Mar 14, 2018 12:33 pm
The actual growth rate may make more of a difference than whether you invest $1250 vs $1400 monthly, especially as your total portfolio grows in value. Invest as much as you reasonably can now, increase that amount when your income rises, minimize investing and living expenses, let time work for you, and hope for the best. Don't agonize over $1250 vs $1400.
Good advice. Right now I'm exactly in the throws of agonizing over $1250 (23.6% of gross) and $1400 (26.5% of gross). Maybe I should up it to $1323 (25% of gross) and just live with it.
Don't agonize over it too much - "the best is the enemy of the good". Pick something reasonable that you can live with and will continue doing and get started. Then take half or more of all pay raises and add it to the savings.
"Plans are worthless, but planning is everything." - Dwight D. Eisenhower

Valuethinker
Posts: 36698
Joined: Fri May 11, 2007 11:07 am

Re: Is my math wrong? - How much should I save monthly?

Post by Valuethinker » Thu Mar 15, 2018 3:47 am

LiterallyIronic wrote:
Wed Mar 14, 2018 11:23 am
I had previously ran the calculations in a spreadsheet I made, trying to figure out how much I need to save every month in order to reach my goal. Starting at $54,000 and wanting to be at $600,000 in 16 years. Using a 7% annual growth (seems like a typical stock market growth).

I had come up with about $1,400/month. However, this site: https://www.bankrate.com/calculators/sa ... lator.aspx
is estimating more like $1,250.

What is the correct figure?
From where we are with stock markets now, likely future growth is more like 5%. Granted, if markets have a significant setback that increases.

But 5% would be roughly a 3% real return. Might do 4%, or inflation might be higher. That would get you closer to 7%.

tbh I would not want to assume more than 6% return. Still doubling the market every 12 years.

msk
Posts: 949
Joined: Mon Aug 15, 2016 10:40 am

Re: Is my math wrong? - How much should I save monthly?

Post by msk » Thu Mar 15, 2018 6:15 am

Frankly we have no clue where the big numbers will fall, capital appreciation of the markets and inflation. in the 50 years 1966 to 2016 Capital Appreciation of the SP500 has been 6.6% p.a. compounded, inflation has been 4% p.a. compounded and dividends have hovered around 3.1% p.a. before taxes. Hence my advice to my kids: Save and invest 30% of after tax income (payment towards principal in a home mortgage counts as saving and investing, not mortgage interest nor any loans in acquiring toys such as cars). I would just put the balance of that 30% (less payment of principal in the home mortgage) into something like VT (whole world) or the SP500 (or any in between blend). In a decade or two you should actually feel almost "wealthy". $600k in 16 years may turn out to be a pittance, or a lot, but saving 30% continuously will assure you a nice balance between splurging today and saving for old age. YOLO!

jeroly
Posts: 28
Joined: Wed Jan 24, 2018 2:07 pm

Re: Is my math wrong? - How much should I save monthly?

Post by jeroly » Thu Mar 15, 2018 6:24 am

Jon H wrote:
Wed Mar 14, 2018 11:43 am
$1220 per month gets you to $600,841 in 16 years

=FV(0.07/12,16*12,-1220,-56000)
or
http://dinkytown.com/java/InvestmentVariables.html

But, as has been said by others, 7% is optimistic. Try running the numbers at 3-4% also so you have an idea of the lower end of the spectrum.
You used a rate of 7.23% because you got the monthly rate by dividing 7% by 12 (.0583333%) instead of using (1.07)^(1/12)-1 = .05654145%.
Using 7% gets you to $586,541. Using your PV calculation you need $1,259 monthly.

LiterallyIronic
Posts: 862
Joined: Sat Dec 05, 2015 10:36 am

Re: Is my math wrong? - How much should I save monthly?

Post by LiterallyIronic » Thu Mar 15, 2018 9:12 am

msk wrote:
Thu Mar 15, 2018 6:15 am
Save and invest 30% of after tax income (payment towards principal in a home mortgage counts as saving and investing, not mortgage interest nor any loans in acquiring toys such as cars).
That metric makes me feel like I'm doing really well! :D

After tax income: $4,074
Investments (Roth IRAs + 401k): $1,216
Mortgage principal from PITI: ~$225
Mortgage principal prepayment: ~$250
Total "save and invest": ~$1,691 (41% of after-tax income)

But I've decided to bump up my 401k contributions from $150/paycheck to $204/paycheck when we do our semi-annual 401k change meeting next week.

User avatar
#Cruncher
Posts: 2693
Joined: Fri May 14, 2010 2:33 am
Location: New York City
Contact:

Re: Is my math wrong? - How much should I save monthly?

Post by #Cruncher » Thu Mar 15, 2018 9:15 am

LiterallyIronic wrote:
Wed Mar 14, 2018 11:23 am
... this site: https://www.bankrate.com/calculators/sa ... lator.aspx is estimating more like $1,250.
To be precise the Bankrate calculator returns $1,234.96 (with "Amount of first deposit" = $54,000).
Ignore these two results since they are calculated inconsistently. The two sites first calculate what $54,000 will grow to at 7% compounded annually in 16 years and subtract this from the $600,000 goal. They then calculate how much in needed each month growing at 7% compounded monthly to produce the residual. [*]
mhalley in same post wrote:But this one gives 1262 https://www.ing.com.au/savings/calculat ... -goal.html
No, it returns $1,234.96, the same as the Bankrate calculator. This is also what the Excel PMT function returns:
1,234.96 = -PMT(7% / 12, 12 * 16, -54000, 600000, 0)

* Can also be calculated as follows using the PMT function:
1,250.70 = -PMT(7% / 12, 12 * 16, 0, 600000 - 54000 * 1.07 ^ 16, 0)

Nate79
Posts: 3727
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: Is my math wrong? - How much should I save monthly?

Post by Nate79 » Thu Mar 15, 2018 10:37 am

LiterallyIronic wrote:
Wed Mar 14, 2018 11:23 am
I had previously ran the calculations in a spreadsheet I made, trying to figure out how much I need to save every month in order to reach my goal. Starting at $54,000 and wanting to be at $600,000 in 16 years. Using a 7% annual growth (seems like a typical stock market growth).

I had come up with about $1,400/month. However, this site: https://www.bankrate.com/calculators/sa ... lator.aspx
is estimating more like $1,250.

What is the correct figure?
Is the $600,000 in today's dollars or in future dollars? If in today's dollars then you need to account for inflation and should use a real annual growth rate. So instead of 7% nominal growth use 4% real growth rate (3% inflation). Then you will see that you need to save much more to reach $600k in inflation adjusted dollars.

Texanbybirth
Posts: 996
Joined: Tue Apr 14, 2015 12:07 pm

Re: Is my math wrong? - How much should I save monthly?

Post by Texanbybirth » Thu Mar 15, 2018 10:44 am

LiterallyIronic wrote:
Wed Mar 14, 2018 12:50 pm

Good advice. Right now I'm exactly in the throws of agonizing over $1250 (23.6% of gross) and $1400 (26.5% of gross). Maybe I should up it to $1323 (25% of gross) and just live with it.
Set it at $1,400 and I bet in 6 months you won't notice the extra $150/mo gone. :beer

LiterallyIronic
Posts: 862
Joined: Sat Dec 05, 2015 10:36 am

Re: Is my math wrong? - How much should I save monthly?

Post by LiterallyIronic » Thu Mar 15, 2018 10:49 am

Nate79 wrote:
Thu Mar 15, 2018 10:37 am
LiterallyIronic wrote:
Wed Mar 14, 2018 11:23 am
I had previously ran the calculations in a spreadsheet I made, trying to figure out how much I need to save every month in order to reach my goal. Starting at $54,000 and wanting to be at $600,000 in 16 years. Using a 7% annual growth (seems like a typical stock market growth).

I had come up with about $1,400/month. However, this site: https://www.bankrate.com/calculators/sa ... lator.aspx
is estimating more like $1,250.

What is the correct figure?
Is the $600,000 in today's dollars or in future dollars? If in today's dollars then you need to account for inflation and should use a real annual growth rate. So instead of 7% nominal growth use 4% real growth rate (3% inflation). Then you will see that you need to save much more to reach $600k in inflation adjusted dollars.
It was just $600,000 straight up, so future dollars.
Texanbybirth wrote:
Thu Mar 15, 2018 10:44 am
Set it at $1,400 and I bet in 6 months you won't notice the extra $150/mo gone. :beer
You're probably right. :wink:

Working2notWork
Posts: 243
Joined: Wed Jan 08, 2014 1:22 pm

Re: Is my math wrong? - How much should I save monthly?

Post by Working2notWork » Thu Mar 15, 2018 11:43 am

LiterallyIronic wrote:
Wed Mar 14, 2018 12:50 pm
...
Maybe I should post our budget though, for motivational purposes.
Regarding budgets - We did the following to our budget when we bought our house:
  1. Shopped around for all - Cars, House, etc - insurance(s) quotes (We ended up with Allstate and got further discounts due to bundling) Saved $500+/year
  2. Cut cable (bought Tablo & Netflix & Amazon Prime [which we already had]) Saved $1,200/year
  3. Dropped cellphone provider and went with PagePlus (MVNO). Same service and coverage. Saved $780/year
  4. Started grocery shopping at Aldi / Food Lion. Saving us $1,000+/year
  5. Started cleaning the house ourselves - 2 rooms/person a weekend; Whole house cleaned once a month. Saved $3,600/year
  6. Maintain the yard ourselves - also good exercise and the kids love 'helping'. Saved $4,000+/year
  7. Stopped drinking beer - better on wallet and waistline. Saved ??? / year
Figured I'd provide some examples that have worked for us.

Goodluck!

Post Reply