Benefits of spending less - Calculator Explanation

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This calculator is similar to the ‘don’t delay your savings’ calculator we examined in my last post. In fact, it more or less performs a similar calculation with a few slight variations. The ‘ddys‘ is good to use if you already have previous savings and want to see the effects of commingling the new stream of savings with the pre-existing monies.

Benefits of spending less - Calculator

This calculator focuses strictly on your monthly savings and how to create this new savings stream. It also gives you the option of factoring in the impact of taxes on your monthly savings stream, as well as a separate window, offering ways for you to reduce your monthly expenses.

Let’s take a look at a screenshot using the $200 monthly savings example from the previous post. And ofcourse, we’re still using the savings to pay off Roth conversion taxes due in 2011 and 2012…

Monthly savings

The total amount that you could save per month by spending less.

This amount is calculated by adding up your potential entertainment, budget, utility savings etc. from the ‘Click Here’ box to the right of that field. By opening the ‘Click here’ box you can input different ways to come up with the $200 a month in required savings. Here’s a screenshot of how I came up with the $200 monthly savings…

Now I’m not saying you have to cut costs the same way I did it. Here’s a few ideas on how to cut your monthly spending:

• reduce your cell phone bill
• get rid of your home phone line
• get rid of some of the premium cable channels that you don’t watch or downgrade to basic cable
• look to reduce monthly car insurance costs
• drink tap water, as opposed to bottled water.

There are alot of ways to come up with the monthly savings, that are really not that life style intrusive, once you’re committed to the plan and your future.

Years to save

The total number of years you are planning to save or invest. In our case, we’re saving for the next 5 years and plan on taking all of our savings to pay for the Roth conversion taxes due in 2011 and 2012.

Annual rate of return

The assumed annual rate of return for your savings account. We’ve inputed a 5% rate once again.

Federal tax rate

The federal tax rate expected on any taxable interest generated from our monthly savings. We will use 25%

State tax rate

The state tax rate expected on any taxable interest generated from our monthly savings. We will use 6%

Total savings before taxes

Total value of your savings before taxes are taken into account. Most regular savings accounts and investment accounts are taxable. However, if your savings is being invested into a tax deferred or tax-free investment this total may be different.

In our screenshot above, the $200 monthly savings contributions, grown out at 5%, with no taxes taken out, total $13,618.

Total savings after taxes

The total amount you would have accumulated in a taxable account. All taxes are assumed to be paid as your earnings accrue. Since we air on the conservative side we will assume our savings interest is taxable.

In our screen shot above, the $200 monthly savings contributions, grown at 5%, total $13,088 after taxes.

In conclusion

Exactly like the ‘don’t delay your savings’ calculator, our total monthly savings come to $13,618 after 5 years. Since we are taxing the interest generated, our net total drops to $13,088. If you cut out $300 in monthly spending, your savings come to $20,427 after 5 years.

The beauty of this calculator is in the additional fields that allow you to edit and create a customized savings plan, based on your unique set of circumstances. By creating a detailed plan for meeting your monthly savings goals, you dramatically increase the chances of success.

It’s one thing to say I’m going to try and save $200 a month; but it’s another thing to have an itemized spreadsheet creating the routine necessary to follow through with it…

Tags: 'Down Home' Financial Calculators, financial calculators, Savings Calculators