How to Calculate the Savings Needed for College in 12 Years

Use the future value of an annuity to find how much to save each year for college.

Saving for college can be a difficult adventure. Get a close approximation of how much you need to put away for the next 12 years using a future value of an annuity formula. This formula looks at how much you need to save, given a certain return on investment, to reach your investment goal after 12 years. Using the formula, you can properly save for college and make it more affordable.

Things You'll Need

• Future value of an annuity formula

Instructions

1. Determine how much money you need for college and what annual interest rate you can get on a saving account. For example, assume you want $40,000 for college in 12 years, and your interest rate on your bank account is 2 percent per year.

2. Find your interest rate and 12 periods on the Future Value of Annuity Factors (see References). In this example, 12 periods at 2 percent is a factor of 13.4121.

3. Divide the amount you need by the future value of an annuity factor. In the example, $40,000 divided by 13.4121 equals $2,982.39, which is the amount you need to deposit each year for the next 12 years, earning 2 percent interest.

References

• Get Objects: Future Value of an Annuity
• Study Finance: Future Value of An Annuity Table