Learning to manage your money starts with having a good understanding of how money works. When you put your money into a savings account or investment plan like a 401k or an IRA, your money earns interest and grows. When you pay for something with a loan or credit card, you owe interest on the money and it ends up costing a lot more than the initial purchase. No matter what your financial situation is, you don’t have to break out the pen and paper to make calculations. A savings calculator can instantly tell you the effect that different choices will have on your finances.
Saving for Something Special
It’s always smart to save up for a big expense. This is true whether you’re thinking about going to college or want to take your family on a Disney vacation. Using a savings calculator in these types of situations can tell you how long it might take to save up for that special purchase. You can also use it to instantly see how paying a bit less or more can affect how long it will take you to save up. When you see how an extra $25 or $50 a month can help you reach your goals more quickly, it suddenly makes it a lot easier to give up a night out on the town and put that money in your savings account instead.
Saving for Retirement
Most people will need to rely on some type of personal savings to meet living expenses during retirement. Using a retirement savings calculator makes it more real. You can see how much difference it makes to start saving in your 20s rather than your 30s or 40s. You can also see how increasing withholdings by just a small amount can help your nest egg grow. In many cases, you won’t even notice a difference in your paycheck.
Saving on Your Purchases
The other way that savings calculators can help you straighten out your finance is when they show you how much you’re really paying for the things you buy. For instance, when it comes to paying off your mortgage, adding an extra $100 to your monthly payment can help you pay off your mortgage as much as five years earlier and save yourself tens of thousands of dollars. With everyday purchases, a savings calculator could show you the real cost of using your credit card rather than saving up. The stark reality can help you stay focused on your goals.
There are a variety of ways that people use savings calculators to help them understand their finances. Find one that fits your needs and make use of it from time to time.
Jonah Engler is a financial expert from NYC.