Saving money from your paycheck. There is a great site developed by ASEC, the American Savings Education Council. ASEC is the world’s best cheerleader for Savings. So click on Choose to Save. That site has an amazing set of Calculators, Savings Tips and Brochures.
When you start to save, most of us want to know how quickly our money will grow. To understand that, you have to take a look at the way that compound interest does most of the work for you. There are at least 2 great calculators for that.
- First, find out what will happen if you only deposit money once, or have an pile of money that you will leave in savings to earn interest. Click on the Compound Interest Calculator, and play around. In the white box, type in the total amount you have deposited in the savings account. In the next box, type the interest rate you are receiving. (In 2012, they have input a low rate, pretty close to the low savings rates today.) In the third box, type in the number of years you will allow that money to grow. Just for fun, type in 10 years first. Hit the Calculate Button below the bar graphs and watch the impact of compounding interest on your original deposit. Then change it a bit by typing in 20 years and hit the calculate button. Finally, look at 30 years. You will see that compounding interest has a really strong and positive impact on your savings over a long period of time. Higher interest rates help too.
- Then try the Savings calculator. This calculator shows you how to build savings by making steady contributions each paycheck. You use 2 tools. First the dollars that you deposit each paycheck. The second is the miracle of compounding. Watch how your savings account (or Hot Flash Stash of Cash) will grow as you make steady contributions and let compounding interest go to work for you. Start with $50 contributions each month. Then change your deposits to $100 each month. Or even $200. Read how high your total grows!
Now, if you want to save to buy something specific, say a new car, or pay for your children’s or grandchildren’s college tuition, there is another great calculator to use.
- Try the Savings Goal Calculator. Say you have 10 years until your child is 18 and ready for college. Type in your savings goal (4 years of tuition at a state college). Then type in the amount you have saved so far. If you are using a savings account, the expected rate of return is just about 2% now. If you are investing in the stock market, you may be able to average 5% (or even 7%) over 10 years. So change the expected rate of return. Input the 10 year you have to save. Then type in the amount of money you will commit to save each month to achieve your goal–paying for this child’s tuition. Hit the calculate button. The graph will show you how close you come to your goal. In this case, I input $200 a month contribution. I fell shy of my goal for $40,000 of tuition. The calculator showed me that I could just add $48 to my original $200 monthly contribution, and achieve my goal.
If investing in the stock market is too scary for you, you can take a look at the U.S. Treasury site, called the Savings Planner. It calculates, or estimates, your return if you invest in U.S. Savings Bonds.