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

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Is my math wrong?  How much should I save monthly?
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?
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?
Re: Is my math wrong?  How much should I save monthly?
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.
Re: Is my math wrong?  How much should I save monthly?
This one gives 1250.70
https://www.thecalculatorsite.com/finan ... ulator.php
As does this one
https://financialmentor.com/calculator/ ... calculator
But this one gives 1262
https://www.ing.com.au/savings/calculat ... goal.html
*Corrected due to fat finger input.
https://www.thecalculatorsite.com/finan ... ulator.php
As does this one
https://financialmentor.com/calculator/ ... calculator
But this one gives 1262
https://www.ing.com.au/savings/calculat ... goal.html
*Corrected due to fat finger input.
Last edited by mhalley on Wed Mar 14, 2018 11:45 am, edited 4 times in total.
Re: Is my math wrong?  How much should I save monthly?
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%....
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 agree with you; we are here to provoke thoughtfulness." Unknown Boglehead

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Re: Is my math wrong?  How much should I save monthly?
Both of those gave me $1,250.mhalley wrote: ↑Wed Mar 14, 2018 11:29 amThis one gives 1364.25
https://www.thecalculatorsite.com/finan ... ulator.php
As does this one
https://financialmentor.com/calculator/ ... calculator
Re: Is my math wrong?  How much should I save monthly?
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.
Re: Is my math wrong?  How much should I save monthly?
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.bloom2708 wrote: ↑Wed Mar 14, 2018 11:35 am7% 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%....

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Re: Is my math wrong?  How much should I save monthly?
$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 34% also so you have an idea of the lower end of the spectrum.
=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 34% 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)
Re: Is my math wrong?  How much should I save monthly?
If you post your budget I bet you'll get plenty of input on where to cutLiterallyIronic wrote: ↑Wed Mar 14, 2018 11:40 amSaving $1,500+ is quite optimistic.
I'm currently at $1,216 and trying to figure out if I can (and need to) bump it to $1,400.
Re: Is my math wrong?  How much should I save monthly?
7% is fine for a 16 year period.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 34% also so you have an idea of the lower end of the spectrum.
Re: Is my math wrong?  How much should I save monthly?
Saving is hard. I know. You could use 12%. Then you will make it faster and can save less/spend more.LiterallyIronic wrote: ↑Wed Mar 14, 2018 11:40 amSaving $1,500+ is quite optimistic.
I'm currently at $1,216 and trying to figure out if I can (and need to) bump it to $1,400.
"We are not here to agree with you; we are here to provoke thoughtfulness." Unknown Boglehead
Re: Is my math wrong?  How much should I save monthly?
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.

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Re: Is my math wrong?  How much should I save monthly?
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.
Re: Is my math wrong?  How much should I save monthly?
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.
Re: Is my math wrong?  How much should I save monthly?
You see, you can't read into that I was being rude because I used the little fellow. No rudeness intended. Saving is hard. I was trying to imply that 7% or 10% or 12%, nobody knows. Can't know.CAsage wrote: ↑Wed Mar 14, 2018 12:12 pmThere 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....
"We are not here to agree with you; we are here to provoke thoughtfulness." Unknown Boglehead

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Re: Is my math wrong?  How much should I save monthly?
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.Pajamas wrote: ↑Wed Mar 14, 2018 12:33 pmThe 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.
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 higherthanexpected expenses after we bought a house last year. Maybe I should post our budget though, for motivational purposes.
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Re: Is my math wrong?  How much should I save monthly?
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.LiterallyIronic wrote: ↑Wed Mar 14, 2018 12:50 pmGood 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.Pajamas wrote: ↑Wed Mar 14, 2018 12:33 pmThe 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.
"Plans are worthless, but planning is everything."  Dwight D. Eisenhower

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Re: Is my math wrong?  How much should I save monthly?
From where we are with stock markets now, likely future growth is more like 5%. Granted, if markets have a significant setback that increases.LiterallyIronic wrote: ↑Wed Mar 14, 2018 11:23 amI 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?
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.
Re: Is my math wrong?  How much should I save monthly?
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!
Re: Is my math wrong?  How much should I save monthly?
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%.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 34% also so you have an idea of the lower end of the spectrum.
Using 7% gets you to $586,541. Using your PV calculation you need $1,259 monthly.

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Re: Is my math wrong?  How much should I save monthly?
That metric makes me feel like I'm doing really well!
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 aftertax income)
But I've decided to bump up my 401k contributions from $150/paycheck to $204/paycheck when we do our semiannual 401k change meeting next week.
Re: Is my math wrong?  How much should I save monthly?
To be precise the Bankrate calculator returns $1,234.96 (with "Amount of first deposit" = $54,000).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.
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 wrote: ↑Wed Mar 14, 2018 11:29 amThis one gives 1250.70 https://www.thecalculatorsite.com/finan ... ulator.php
As does this one https://financialmentor.com/calculator/ ... calculator
No, it returns $1,234.96, the same as the Bankrate calculator. This is also what the Excel PMT function returns:mhalley in same post wrote:But this one gives 1262 https://www.ing.com.au/savings/calculat ... goal.html
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)
Re: Is my math wrong?  How much should I save monthly?
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.LiterallyIronic wrote: ↑Wed Mar 14, 2018 11:23 amI 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?

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Re: Is my math wrong?  How much should I save monthly?
Set it at $1,400 and I bet in 6 months you won't notice the extra $150/mo gone.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.
"Knowledge and innocence are both excellent things, and they are both very funny. But it is right that knowledge should be the servant and innocence the master."  GK Chesterton

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Re: Is my math wrong?  How much should I save monthly?
It was just $600,000 straight up, so future dollars.Nate79 wrote: ↑Thu Mar 15, 2018 10:37 amIs 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.LiterallyIronic wrote: ↑Wed Mar 14, 2018 11:23 amI 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?
You're probably right.Texanbybirth wrote: ↑Thu Mar 15, 2018 10:44 amSet it at $1,400 and I bet in 6 months you won't notice the extra $150/mo gone.

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Re: Is my math wrong?  How much should I save monthly?
Regarding budgets  We did the following to our budget when we bought our house:LiterallyIronic wrote: ↑Wed Mar 14, 2018 12:50 pm...
Maybe I should post our budget though, for motivational purposes.
 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
 Cut cable (bought Tablo & Netflix & Amazon Prime [which we already had]) Saved $1,200/year
 Dropped cellphone provider and went with PagePlus (MVNO). Same service and coverage. Saved $780/year
 Started grocery shopping at Aldi / Food Lion. Saving us $1,000+/year
 Started cleaning the house ourselves  2 rooms/person a weekend; Whole house cleaned once a month. Saved $3,600/year
 Maintain the yard ourselves  also good exercise and the kids love 'helping'. Saved $4,000+/year
 Stopped drinking beer  better on wallet and waistline. Saved ??? / year
Goodluck!