When it comes to planning for your financial future, it is important to understand how much money you are saving over the course of a year. By understanding how much money you're placing in the piggy bank you may get a snapshot of what you and your family need to do to reach your financial goals. A look at how to calculate your personal savings ratio and how the money you save compounds for years to come might be helpful.
Things You'll Need
- Savings calculator
Personal Savings Ratio
Calculate the amount of gross income that you have for the year. This includes all money received from your main source of income, such as your job, as well as smaller amounts of money like dividend payments. For example, say that a family earns $100,000.
Find the amount of money that you are saving over the course of a year. For the example, say that same family sets aside $12,000 per year.
Divide the amount of money that saved by the amount of money that they earned to get your personal savings rate. The equation reads:
Money Saved / Money Earned = Personal Savings Rate
$12,000 / $100,000 = 0.12 or 12 percent.
Determine the amount of money that you are saving on a regular basis. For example, a family is saving $1,000 per month.
Determine the interest rate that is being paid to you on your savings account. Say the family in the example is paid 4.0 percent interest on savings.
Calculate how long you intend to save that money. Say the family is looking at a 20-year snapshot of savings.
Plug these numbers into a savings calculator. The family who saved $1,000 per month for 20 years at 4 percent interest will have a balance of more than $365,000.
Tips & Warnings
- When using a savings calculator, you may want to adjust the for inflation. Adjusting your savings for inflation will give you a snapshot of how far the money will go in the future in comparison with money today.
- Photo Credit money money image by Valentin Mosichev from Fotolia.com
- How to Calculate Savings Rate
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