PMT formula
Standard annuity payment calculation
4–5%
Typical HYSA rate for short-term goals (2026)
6–7%
Common assumption for invested long-term goals
3 yrs
Rough cutoff between HYSA and invested goals
The formula behind required monthly savings
The calculation is the payment formula for an ordinary annuity, solved for the monthly contribution: PMT = (FV − PV × (1+r)ⁿ) ÷ (((1+r)ⁿ − 1) ÷ r), where FV is your goal amount, PV is what you've already saved, r is your monthly interest rate (annual rate ÷ 12), and n is the number of months remaining. This accounts for both your existing balance growing on its own and your new contributions growing from the moment each one is made.
In plain terms: the formula asks how much you need to add each month so that your current savings, plus every future contribution, each compounding until your deadline, adds up to exactly your goal.
Why compound interest changes the number more than people expect
Over long time horizons, the gap between saving with and without interest becomes substantial. A $500 monthly contribution earning 5% annually grows to roughly $77,000 over 10 years, compared to about $60,000 with no interest at all — a difference of roughly $17,000 that came entirely from compounding, not from saving a single extra dollar. This is also why starting earlier matters more than saving slightly more later: the earliest contributions have the most time to compound.
Choosing a realistic return rate for your timeline
- Goals under ~3 years: a high-yield savings account (HYSA), commonly 4-5% APY in 2026, keeps principal guaranteed while still earning meaningfully more than a standard account
- Goals of 3-10 years: a money market fund or a conservative, diversified investment allocation, often modeled around 4.5-6%, balances some growth with reduced volatility exposure
- Goals beyond 10 years: a diversified investment portfolio (e.g., index funds) is commonly modeled at 6-7% long-term average return, accepting more short-term volatility in exchange for higher expected growth
- For any goal, using an overly optimistic rate understates how much you actually need to contribute — when in doubt, model a slightly lower rate than you expect
💡 Adjust for inflation on longer goals
For goals more than a few years out, subtract your expected inflation rate (commonly modeled at 2-3%) from your expected return to get a 'real' return rate. This keeps your target denominated in today's purchasing power rather than overstating how far a fixed dollar goal will actually stretch by the time you reach it.
Saving for multiple goals at once
Run the calculation separately for each goal and sum the required monthly amounts — the formula doesn't change, it just needs to be applied per goal since each has its own target, timeline, and appropriate account type. Most financial planners suggest a priority order: a starter emergency fund first, then high-interest debt payoff, then the full emergency fund target, then other savings goals in order of urgency or importance to you.
Use the Savings Goal Calculator on this site to find your exact required monthly contribution for any goal, current balance, timeline, and expected return, along with a year-by-year growth chart. Pair it with the Compound Interest Calculator to explore how contribution amount and time horizon trade off against each other, or the Emergency Fund Calculator if your goal is specifically a safety net rather than a purchase.