Determine How Long It Will Take You To Reach Your Savings Goal

Savings Goal Calculator Example

Embedded Example of this Savings Goal Calculator

Teaching Your College Student to Live on a Budget

In personal finance, you set financial goals so you can plan your budget around those goals. After all, they are your priorities, aren't they? Here is how financial planners work with budgets:

A budget has two main components: cash coming in (inflows) and cash going out (outflows). If you subtract the outflows from the inflows, the answer should always be zero. That is called balancing the budget.

The outflows represent cash paid to meet your goals. For example, you may have short-term goals of providing food, shelter, and clothing for your family. Your expenses for food, shelter, and clothing are outflows that satisfy that immediate need. You probably get cash to meet those goals from income earned from work, so you really do not have to plan too far into the future. However, let's say you have a goal to purchase a replacement vehicle in a year or two. Where is the cash going to come from? It is not likely to come from income earned from work the month prior to satisfying that need, is it? More likely, it will come from savings or borrowing. Inflows provide cash needed to meet your goals. However, with planning for your goal, you will know how much can come from savings and how much should be borrowed.

Why Americans Don’t Save Money

Personal finance also helps you make better savings and investment decisions because it focuses on your goals. Your budget (or spending plan) should be built around your day-to-day expenses, including your short-range lifestyle and financial goals. These may include your goals for your family's well-being, shelter, food, clothing, and recreation. It should also provide for future personal lifestyle and financial goals as well.

Savings and investments should be used to match your short-, intermediate-, and long-range financial goals. You save and invest for a purpose, not just to accumulate great wealth. In fact, you save and invest for many purposes, and how you save and invest depend upon the purpose. For example, if you need to replace a household appliance costing a few hundred dollars in the next 12-18 months, you will save differently than you would if you were saving to pay for a child's education in 10-15 years. To make these decisions, you need to understand the relationship among investment risk, time horizon, and investment reward.