Kristin Fink September 29, 2020 Budget

Today I'm going to talk about how to calculate, **how much to save budget**, this math is gonna be super simple. You're gonna be able to do it on your phone. If you're trying to get to a goal, say buying your first home or going on a vacation, you want to say for it, you need a better way to do it and you want to calculate it. You wanna how much to save, right?. So, we need to upgrade this to something that's going to work a little bit better for us.

So, here we go. I wanna tell you the name of the *budget savings calculator* that I use on my phone. It's super simple, instead of going out and buying a financial calculator, you can actually download a simple App to do the math for you. It's fairly simple. I'm gonna show you how to do it. So today's example, I'm gonna talk about buying a home. So, let's say it's your second home or your first home, it doesn't matter. You want to be able to save a little bit of money. You want to avoid PMI, so you want to save at least 20%. So, if that's the case, let's do some math, so we're gonna start out with the goal, which is $300.000.

Now that's the purchase price. So, we have $300.000, but we only need to save 20% of that. Twenty percent of that is gonna come out $60.000. Now the other thing that you need to know is when you want to buy the house, you know when is a reasonable expectation that you can afford the house? Well, maybe you don't know. So, we're gonna have to work on some math. So, one of those things is the time frame. So whether that's three, five or ten years out now, I'm sure that you want to buy this house as quickly as possible. So here's how we can do it.

So, the sixty thousand dollar goal is what we're trying to achieve, but we know that there's something else. There's something called inflation that's the price of goods every single year, slowly increasing. Well, sometimes we don't even feel it, but it does happen. So, let's assume, we're gonna have to assume something we're going to assume a rate of inflation. So we're gonna assume this sixty thousand right here is growing at a three percent __annual rate of return__. That means, if we're gonna buy this house in five years, that sixty thousand is going to be more.

So let's say that's five years, at three percent. So, now we have to figure out what is $60.000 in five years. So let's take this math and let's inflate that sixty thousand out for five years. So we're gonna do it on the calculator. The calculator called 10BII Calc HD that I'm using on my phone, so you can do it simply. If we're taking and we're looking at the five years first, we wanna hit five shift and end. That's going to give us our sixty months. You can see sixty up there sixty payments. If we go to the interest, we're gonna get a 3% interest rate because that is a deflation. Our present value is $60.000. We're not going to save anything. We just want to know what sixty thousand is in five years our future value, or future value is gonna give us that $69.697. Don't worry about that negative. You just have to save the $70.000, that's the number that we're looking for.

So, now we know that in five years that same sixty that's today is going to be seventy thousand tomorrow. So, now we have to figure out how much we need to save. So what we need to now assume is what rate of return we're gonna get in the market. So let's say assuming a seven percent, so let's change that interest rate to seven percent, we're still gonna keep it with the five years or the sixty months. And our present value is now zero because we have nothing saved and if we hit the payment key, the PMT that's gonna be $674/month at a seven percent rate of return. So for investments do seven percent, every single year will have enough money to put down on a three hundred thousand dollar house.

Now, let's say that $674/month is out of your budget, something that you can afford. So that means we're gonna have to prolong the goal, or push it back. So instead of five years, maybe we will go to six or seven years, so you can make that simple adjustment right on your calculator by just seven. shift in the N K and you can see that change to eighty four months, which is seven years. If you go back and hit the payment key, we could see that it brings it down to $645 per month. And if you want to be more conservative, and you want to only get a five percent **rate of return**, you just hit five shift an interest and hit that payment key again, and you can see it goes back up a little bit. It went to $695, so you can work this math on one specific goal for anything that you're trying to achieve. You just want to make sure that your assumptions are correct, whether it's inflation or the rate of return that you're achieving. Don't take on more risk than you can handle. This is just to show you how the math is done.

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