Savings is an essential part of financial planning if you want to build a solid corpus of funds for yourself and your loved ones. All you need to do is set aside a portion of your existing income and invest it in various instruments so as to make your money work for you. Doing so will enable you to meet your short-term and long-term goals with ease. It is necessary to start saving at the earliest if you want to live a comfortable life in the future. You can use a savings calculator to see objectively how much you need to save to reach a certain milestone.
An investment calculator is a helpful tool that can work wonders in giving you a clear idea as to how much you need to save for your future. After you have established a savings account, you can start planning your investment and evaluate how much money you can save monthly to earn a reasonable future income.
A savings calculator will not only plan your savings for you but also help you see how various investment plans works. For instance, if you want to know how ULIP plan works, an investment calculator will guide you in understanding the process.
In this article, we will explain everything there is to know about a savings calculator so that you can make sound investment decisions.
What is a savings calculator?
The toughest part about saving is to get started. You need to make a clear assessment of your assets and liabilities to see how much you can save and how you can achieve your financial objectives over time.
According to financial experts, you should aim to invest at least 15-20% of your net income towards a savings account.
You can use the following steps to start developing a reasonable savings plan:
- Set a goal
Before you start saving, you need to set a goal in order to devise a practical strategy. In absence of a goal, you will be looking at it like a headless chicken. Therefore, set a target that will make you financially secure after you have reached your retirement. However, there are also many short-term goals that may you need to fulfil in the interim, such as buying a new car, pay for your child’s marriage, a family vacation, medical emergencies, etc. Account for all these contingencies to stay realistic.
- Note all your expenses
Keep a note of all your expenses and remove the unnecessary ones. Start by recording all your expenses every month. It should include even the smallest expense from buying a newspaper to paying for a cup a tea. Once you have all the data, start categorizing your expenses under heads like groceries, transportation, shopping, etc.
- Make a budget
Once you have set a goal, it is time to devise a savings plan with the help of a savings calculator. You need to make a budget that will limit your spending and remove all unnecessary expenditures from your expenses. You should also include the expenditures that are not recurring on a monthly basis, such as medical check-ups, paying for your child’s school fees, etc.
- Make a strategy
A savings calculator will tell you how much you need to save on a monthly or yearly basis to reach your financial goal. Once you have that figure, you need to choose the right instruments to start saving your money. For instance, for short-term goals, you can invest in recurring deposits, fixed deposits, mutual funds, etc. For long-term goals, you can consider ULIPs, etc.
Tips to Use the Savings Calculator
The savings calculator can take all your details and give you a number that you need to save in order to reach your financial goals. The calculation will take your existing savings into account and the gross interest that you earn on those savings. Here are some things you need to keep in mind when using the calculator:
- Amount you want to save
You need to mention the amount you want to save for a secure future.
- Existing savings
List all the savings you already have, be it liquid assets or savings made in the form of investments.
- Choose between monthly or annually
Select whether you want to save monthly or yearly
You need to choose the desired time in which you want to reach your savings goal
- Gross interest rate
In this field, you need to enter the interest you receive on your savings per year.
Once you fill in all these details, the savings calculator will give you a reasonable idea of the amount you need to save to reach your financial goal. It is a good starting point for early investors as it gives them an objective picture of what their savings should look like.