Pay Yourself First Calculator

This calculator will show you the incredible amount you will earn over your lifetime and the dramatic impact of setting aside a percentage of those earnings in a tax deferred retirement account. Most people have trouble setting aside money at the end of each month to invest, because daily living expenses often consume most of their paychecks. Paying yourself first - before all other expenses such as housing, food, transportation, clothing and remaining bills - is an important step in ensuring that you will have adequate financial reserves for your retirement. Decide to save a set percentage of your salary each month and have that automatically deducted from your paycheck or bank account.

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Calculator Legend

Current Age: Enter your age today.
Retirement Age: Enter the age at which you plan to retire. The maximum age is 70.
Annual Salary: Enter your current annual salary.
Salary Increases: Enter the percentage you expect your salary to increase each year.
Pay Yourself: Enter the percentage of your salary (before taxes or any deductions whatsoever) you will save for retirement.
Rate of Return: Enter the average annual rate of return of your retirement account. Ask your retirement account's managers for the historic rate of return over the life of the fund (hint: check their website).

Time and Money

Time really is money--or at least, time makes money. You already know this if you have a savings account. Yet the paltry amounts of interest you get from a savings account are nothing compared with what you make over time with a typical retirement account, which generally has a much higher rate. By putting money in a retirement account today, even if you never save another penny in the future, your retirement savings will keep growing and growing. In essence, you will be making money for growing older--something you would have been doing anyway.

Over the course of 35 years, someone making $50,000/year will have made more than $2,000,000, assuming modest 1% annual raises. Of course, it's impossible to save that entire amount--there are taxes and federal and state deductions, on top of the cost of living. Yet even saving a small percentage of it can eventually yield quite a bit of money if invested, thanks to compound interest.

With compound interest, you not only get interest on the amount you deposit. You get interest on the interest of what you previously deposited, and on the interest on the interest on the interest, and so on.

Let's say you're 35, make $30,000/year, and get a 1% raise every year. If you save just 5%/year of your salary, you will have $286,473 for retirement by the time you're 70 (assuming a reasonable 8% rate of return). If you had started saving when you were 30, you would have $433,621.

Use the calculator to see how much money you could make if you start saving today. After all, you're going to be getting older anyway. You might as well be making money from the passage of time.