I’m often asked some version of, “How much is enough for this thing/project/trip?” Of course, “enough” is a tricky concept itself. Still, there are ways to plan so that you’re likely to have the money you need when you need it.

There are two hidden parts to this question. The first is “How much do I need total?” and the second is “How much do I need to save each month in order to reach that total by the time I need it?” By the time you finish reading this, you’ll have the answers to both questions!

The Basics

A lot of people get nervous about the math involved here. Don’t worry about that because I’ll do the math for you. (And if you sign up below then you’ll get my free How Much Is Enough for a House? calculator to do it yourself!)

Also remember that you already have an idea of how to do this. How much do you need to save up for a new cell phone? How much will that awesome dress cost you? This is pretty similar.

I can already hear your objections: those numbers are smaller, those are simple costs, etc. Well, bigger things are figured out the same way, just on a larger scale. As I walk you through the process, you’ll see what I mean.

I am going to show you how to save up by spreading out the costs evenly – that means saving the same amount each month. Obviously there are other options. You could save more earlier on, or wait and do your saving later. You could put aside larger amounts 3 times a year. Maybe you get a bonus at work one year and that changes your savings. Spreading out your savings evenly is simply the most straightforward, reliable method. Even if you make some changes, it gives you a good idea of how much you need and what is involved in saving it.

You’ll often be saving for more than one thing at a time, so go through these steps for each of your goals or projects, then add them all up.

Let’s break this down into two categories: saving for retirement and saving for everything else. That’s because retirement has a bit of a different feel to it. So we’ll start with non-retirement projects today and we’ll cover retirement next time.

Saving for a Specific Item, Project, or Event

Step 1: Calculate the total cost

Often, you won’t know the total cost, so you’ll do the best you can, then add in extra “just in case” money on the budget.

Example 1: You’re going on vacation. You go online to figure out the cost of plane tickets, a hotel room, and a rental car. You estimate meals and museums. You figure outcancun-1228131_1920 how many people you’ll buy souvenirs for, and add that into your budget. Then you increase your budget by a comfortable margin, maybe 15%, because there’s always some extra expense (parking fees? a side day trip?) that you didn’t plan on. Total cost: $3000

Example 2: You’re going to need a new car in a few years. You can’t get to your job without a car and your current car is getting older and starting to need more repairs. You want to start saving up now so that you can buy your next car in cash and avoid having any car payments. You decide which features are must-haves (anti-lock brakes? extra air bags?) versus nice-but-not-necessary (4-wheel drive? hatchback?) and which are completely unnecessary (sun roof? satellite radio?) Then you look online to get an idea of car prices. You test drive a couple of new and used cars. You decide what you want and how much it will cost, including taxes and fees. Total cost: $15,000

Example 3: You want to buy a house. You look at properties online and visit an open house or two. You figure out what neighborhood you want to live in, what size house you want, the house’s age and features, etc. This gives you an idea of its total cost. You decide how much you want to pay for a monthly mortgage. You call up the bank to find out how much of a mortgage you’ll qualify for and how much the monthly payments will be. If these don’t align, you work with the bank to figure out how they might. (You might need a larger downpayment so your mortgage is lower, or example, or you might need to buy a less expensive house than you had planned.) You know that you need at least 20% of the cost of the house for a downpayment, so that’s how much you need to save at the moment, plus several thousand dollars more to cover closing costs, taxes, and any initial repairs. Total cost: $50,000

Step 2: Set your date

When will you be spending the money? Sometimes this is one specific day, sometimes it’s spread out. Calculate this in months – that will make step 3 a lot easier. Let’s return to our examples to see how this plays out.

Example 1: Your vacation will be in 9 months. You need to buy the plane tickets in advance and you’ll pay for the rest during the trip. Time: $600 in 3 months, $2400 in 9 months.

Example 2: You think your current car will last 3 years, but just to be safe, you’ll plan on house-908459_1920getting a new car in 2 years. You can always wait longer if it’s not needed at that point. Time: $15,000 in 24 months

Example 3: You’d like to buy the house as soon as possible, but you’re not sure how long it will take you to save up the money you need. For now you’ll plan on buying it in a year, and you’ll adjust that if you need to. Time: $50,000 in 12 months

Step 3: Determine how much you need to save each month

Now you know how much you need and you know when you need it. The rest is easy! Just pull out your calculator (unless you really love doing long division by hand – personally I prefer a calculator!) and divide the amount of money by the number of months, and that’s how much you need to save each month. Again, our examples will make this clear.

Example 1: You need $600 to pay for the plane tickets in 3 months. 600 / 3 = $200 4-11-2016 4-59-47 PMper month. You also need $2400 for the rest of the trip in 9 months. You have two options: you can wait until after you pay for the plane tickets, or you can let4-11-2016 5-00-03 PM them overlap. If you wait, you’ll need to save up $2400 in 6 months: 2400 / 6 = $400 per month. If they overlap, then 2400 / 9 = $266.66 per month. So your two options are:

$200 per month for 3 months, then $400 per month for 6 months or
$466.66 per month for 3 months, then $266.66 per month for 6 months

Example 2: Saving $15,000 in 24 months for the car is straightforward division:

15,000 / 24 = $625 per month

Example 3: Since you’re not certain when you’ll be able to afford the house, you start with the straightforward math for saving up $50,000 in 12 months:

50,000 / 12 = $4166.66 per month

You can’t save quite that much, and you don’t mind waiting on the house, so you think 2 or 3 years is more reasonable. Let’s calculate two and a half years, which is 30 months:

50,000 / 30 = $1666.66

This feels doable, so it’s your new plan: to get a house in 2.5 years.

Step 4: Decide if your plan is reasonable

I bet you thought we were done! Not so fast…. It’s easy to follow the first 3 steps and feel like you have a plan, but later realize the plan just doesn’t work. Let’s skip the pain of a plan that fails by taking time now to make sure it’s a plan that’s destined for success.

Step 4 is to ask yourself, “Will this work?”

But don’t just look at this one savings goal, look at your overall life and budget. If you use this method to calculate how much you need to save for a house, a trip, a college fund, and a car, can you really manage saving for all of them at once?

Are you about to make a major life change that will affect your finances? Maybe your plan calls for saving $2000 per month and right now that’s fine, but you’re about to have your first child, buy your first house, or change to a lower paying job. Take these things into consideration.

Does your plan feel doable, but just barely? If you can manage to save that $2000 per month you need, but you’ll only have $50 leftover at the end of the month, you’re probably setting yourself up for failure. Give yourself a cushion for those unexpected things that happen in life. If one illness, one unexpected wedding present for a friend, or one car repair will cause you problems, then your goal is too aggressive.

If your plan isn’t quite going to work, you have some choices: save less, set a later deadline for yourself, find a way to cut other expenses, or find a way to earn a bit more income (or probably do a combination of these!)

The amounts in our examples vary so much, and there’s no right answer because everyone’s situation is different. One person might find $400/month for a trip too much to save while another thinks that $4100/month for a house down payment is no big deal. Someone else would be the opposite. Review your own situation to figure out what’s best for you. Because your situation is the only one that matters here.

Retirement

Ready to tackle retirement savings next? Check out the second part of this step-by-step guide here.

Final Thoughts

You now have the tools to figure out how much is enough for whatever it is you need. It is up to you to use these tools. Get the free calculators (sign up above) and begin playing around. Some calculations will be discouraging but others will be exciting and empowering! Figure out what you can do and go make it happen! And if you found this helpful, please share it with others so they can benefit too.

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