How much do you need to set aside each payday to save up for a big ticket item you will need to buy a few years from now?
Sure, you could do what a lot of people do and just pull out your credit card when it is time for you to buy that big ticket item, then spend the next several years paying for it and the interest your credit card company will charge you. But what if you would rather only pay once for what you know well in advance that you're going to be buying?
Better still, what if you set aside money every payday and earned a little bit of interest on it from that savings account at your bank? You wouldn't need to set aside quite so much, but all the money you would need would be ready when you're ready to pull the trigger on your planned purchase.
That's where our latest tool might be really helpful for you. Just enter the indicated data for your future purchase in the input fields below, and it will work out how much you will need to set aside from each of your paychecks until you have saved enough! [If you're reading this article on a site that republishes our RSS news feed, please click here to access a working version of the tool at our site.]
For our default calculation, if you placed $126.69 out of every paycheck in your savings account and earned 0.8% interest on it, you would have $10,000 saved up after 3 years. If you change the interest rate to 0%, you'll find that you'll have reduced the amount you need to save by $1.52 per paycheck, which doesn't sound like much, but that's a $118.56 savings for you over three years.
If you can get a higher interest rate on your savings account, then the savings math may become more compelling. Alternatively, if you can find a way to get a discount on what you're looking to buy and are willing to adjust the timing of when you plan to buy, that will work in your favor too.
If you're wondering about the math behind the tool, it the same that big corporations use when they plan to set aside funds to pay dividends to their shareholding owners or to pay back money they've borrowed. They call these special purpose savings accounts "sinking funds", although we have yet to find a compelling explanation for why they're called that.
But you have to admit, they're an excellent way to ensure you have the money you will need when it is time to buy that costly, not-so-everyday item. Not to mention being easier to manage than three years worth of loose change tossed in a jar!
Image credit: Photo by Michael Longmire on Unsplash
Labels: debt management, personal finance, tool
Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:
ironman at politicalcalculations
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