How the monthly amount is worked out
First, your current savings are projected forward at your interest rate, because money you already have keeps growing on its own. The remaining gap is then spread across your monthly deposits, each of which also earns interest from the month it is made.
Because both existing savings and new deposits compound, the required monthly amount is usually smaller than target divided by months. The longer the runway, the bigger that discount becomes.
Setting a sensible target
For a house deposit, aim for 20% of the price plus transaction costs. For education or a wedding, inflate today's price first: something costing 50,000 today at 6% inflation costs about 67,000 in five years.
Match the savings vehicle to the deadline. Goals under two years belong in savings accounts or short deposits where the value cannot dip. Only genuinely long-term goals should ride market volatility.
Frequently asked questions
What interest rate should I use?
Use the rate of wherever the money will actually sit, roughly 3 to 7% for savings accounts and deposits. When in doubt use a lower rate and enjoy the buffer.
What if I cannot afford the monthly amount?
You have three dials: extend the deadline, lower the target, or accept more risk for a higher return. Even a small deadline extension often reduces the monthly figure noticeably.
Should I save monthly or whenever I can?
Automatic monthly saving on payday succeeds far more often, because it happens before spending gets the chance. Treat the monthly figure as a bill you owe your future self.
Does this account for inflation?
It reaches the target in nominal terms. For goals several years out, inflate the target first by multiplying today's cost by (1 + inflation)^years.
Is my existing savings counted?
Yes. Current savings are projected forward at the same rate, and the monthly amount only covers what that growth will not.
What if rates change along the way?
Revisit once a year with your updated balance and remaining time. Course corrections are normal, and the habit of checking is what keeps goals on track.