Basic Financial Planning for Newlyweds
Step 4: Set Your Savings and Debt Reduction Goals
Your Initial Financial Plan:
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Our S.O.S. for Savings
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:
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, please view our completed example or print out our blank template. If you have Microsoft Excel, you can download the completed example and the blank template on goals.xls.
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 Page" or use our debt/savings calculator at calculator.xls.
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 Page" or use our debt/savings calculator at calculator.xls.
Simplify This Step By Using Our Debt/Savings Calculator
Download our (Microsoft Excel) debt/savings calculator at calculator.xls to calculate how much you need to set aside each month to pay off a debt or reach a savings goal.
Here's some additional articles about meeting your goals that you might find interesting:
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