Set your savings and debt reduction goals

Our S.O.S. for Savings

Set a reasonable savings or debt reduction goal for the year
Open a separate account to hold the savings
Systematically add to the new account or make payments towards each debt throughout the year

Did you know that if you put only $81.50 into a savings account each month, you'd have $1,000 saved at the end of the year? Put away $815 each month and you will have saved $10,000 during the year.

How Much Needs to be Allocated to Each of Your Savings and Debt Reduction Goals?

Once you complete your monthly cash flow budget in Step 3, and have determined your monthly surplus, the next step is to allocate that surplus among your various savings and debt reduction goals. To do so, simply follow these three steps:

Set your specific savings and debt reduction goals.
Give yourself a reasonable time frame for meeting each goal.
From the Applicable Factors Tables, multiply your goal by the applicable factor to determine how much money needs to be set aside on a monthly basis for you to meet each specific goal.
(To simplify this step, download our Microsoft Excel debt/savings calculator to make the calculations for you.)

Please note: Allocating your monthly surplus to your various savings and debt reduction goals is the most difficult step of your initial financial plan. You'll probably need to work through these three steps using many different scenarios before being able to finalize your savings and debt reduction budget.

To help you prepare your Savings and Debt Reduction Budget, you can:

Two Examples of Calculating the Monthly Payment Necessary to Meet a Specific Goal

Example 1: How to Calculate the Monthly Payment Needed to Pay Off a Debt

In this example, you owe $12,000 in student loans which you want to pay off in 5 years. The rate of interest on the loans is 8%.

To meet this goal, you'll need to make monthly payments of $243.32, calculated by multiplying the $12,000 owed by the applicable factor of 0.0203 taken from Table 1 of the Applicable Factors Table or use our debt/savings calculator

Example 2: How to Calculate the Monthly Amount Needed to Reach a Savings Goal

In this example, you are planning to purchase a home in 3 years and need to save $30,000 for the down payment. You plan to invest the money in a bank money market account, and anticipate earning no more than 4% interest on money saved in this account.

To meet this goal, you'll need to save $785.72 each month, calculated by multiplying the $30,000 by the applicable factor of 0.0262 taken from Table 2 of the Applicable Factors Table or use our debt/savings calculator