Finance⏱ 5 min read
How to Calculate How Much You Need to Save Each Month
Working backwards from a financial goal to a monthly savings target is a fundamental personal finance skill. Here is the formula for any goal — lump sum, retirement pot, or deposit.
Most savings calculators tell you what you'll have given a monthly amount. This article works in the opposite direction — starting from the goal and calculating exactly what you need to save each month to reach it.
The Future Value Annuity Formula (Reversed)
Monthly payment needed to reach a target future value:
PMT = FV x (r / ((1 + r)^n - 1))
Where:
FV = target future value (your goal)
r = monthly interest rate (annual rate / 12)
n = total number of monthly payments
Example: Saving for a £30,000 car deposit in 4 years
Annual interest rate: 4.5% (easy access savings)
Monthly rate: 4.5% / 12 = 0.375% = 0.00375
n = 4 x 12 = 48 months
PMT = 30,000 x (0.00375 / ((1.00375)^48 - 1))
= 30,000 x (0.00375 / (1.1964 - 1))
= 30,000 x (0.00375 / 0.1964)
= 30,000 x 0.01910
= £573/month
Simplified Method (Rough Calculation)
Without interest: Monthly payment = Goal / Months
£30,000 in 48 months (no interest):
= £30,000 / 48 = £625/month
With 4.5% interest, actual need: £573/month
Interest earns: £573 x 48 = £27,504 contributions
+ £2,496 in interest = £30,000 ✓
The interest saving becomes much more significant over longer terms:
£200,000 pension target in 30 years at 6% real return:
Without interest: £200,000 / 360 = £556/month
With 6% return: PMT = ~£199/month (interest does most of the work)
Common Goal Monthly Requirements
GoalTargetTimelineMonthly (4% return)
Emergency fund£5,00012 months£410
House deposit (10%)£25,0005 years£378
New car£15,0003 years£393
Wedding£20,0003 years£524
Retirement pot£300,00025 years (7%)£407
Adjusting for Starting Balance
If you already have savings toward the goal:
PMT = (FV - PV x (1+r)^n) x (r / ((1+r)^n - 1))
Where PV = present value (what you have now)
£30,000 goal in 48 months, already have £5,000, 4.5% rate:
PV grows: £5,000 x (1.00375)^48 = £5,000 x 1.1964 = £5,982
Remaining to save: £30,000 - £5,982 = £24,018
PMT = £24,018 x (0.00375 / 0.1964) = £24,018 x 0.01910 = £459/month
(vs £573 without the starting balance)