The equation I use to figure out how much money to save for any goal within the next 5 years

• Achieving any big financial goal requires some planning.
• If you know your target savings balance and when you want to reach it, you can easily calculate how much of each paycheck you need to save.
• Savings interest, bonuses, or pay raises could help boost your balance, but not factoring them in at the outset ensures you'll meet your goal without them.

We all have goals we're working toward in life, and many of them cost money.

Buying a house, getting your MBA, sending a child to private school, taking a once-in-a-lifetime vacation, launching a business — whatever your goal, chances are you don't have the cash just sitting around to fund it in full. That's where saving comes in.

Saving money for a big purchase or event might seem overwhelming if you start with nothing in the bank. I'm supposed to have $50,000 for a down payment if I want to buy a house in three years? On this salary? Get real, you might be thinking.

But with a simple equation that breaks down the big goal into a series of smaller ones, you can illuminate a path that feels far more achievable.

One caveat: The equation works best for goals with a timeline of five years or less. Anything beyond that, such as retirement, requires a slightly more complicated formula that factors in investing returns.

How much to save for short-term financial goals

First, you need to know two things: your target balance and when you want to get there.

Then, plug those numbers into this equation:

Total amount needed ÷ the number of years until the event or purchase ÷ 24 paychecks in a year = how much to save every time you get paid

I save money automatically through direct deposit. Twice a month when my paycheck comes in, part of it goes into my checking account to cover bills and part of it goes into my high-yield savings account for a specific goal. I've found this is the best way to ensure my goals are a true priority.

If you don't get paid on a regular schedule or prefer to save monthly instead, simply swap out the final part of the equation — the number of paychecks per year — with 12, to represent the number of months.

Here's how I used the equation to build up my travel fund:

$5,000 [target balance] ÷ 2 [number of years to meet my goal] ÷ 24 [number of paychecks per year with direct deposit into savings] = $104

$5,000 sounds like a lot. But $104? Much more palatable.

Savings boosters can help you reach the goal even sooner

What I love about this equation is that it's conservative. It assumes that every dollar will come from the same place (your paycheck), and at the same time (once or twice a month). Thankfully, reality can be more generous.

In the example above, it didn't take me two full years to meet my goal. I don't like to rely on compound growth, or pay raises, or windfalls, but all of these helped boost my ability to save and shortened the time it took to reach my target number.

High-yield savings accounts offer a modest return on your balance while keeping your money safe and accessible. My high-yield savings accounts have earned me over $150 in interest this year. But, interest rates are variable. Economic conditions can cause rates to change multiple times a year, so I like to think of compound growth as a bonus.

Pay raises can help increase your cash flow. If your expenses stay the same after your income goes up, you should be able to save more money. After each pay raise, I re-evaluate my goal to see if I can save more, and then adjust my timeline.

Windfalls, like a tax refund or a bonus (or even a stimulus check) might be expected but are not always guaranteed. I've been lucky to get a few small financial windfalls. Whenever I add this money to my savings account, I plug my numbers into the equation again.

Of course, reality can sometimes be not-so-generous, too. If you lose your job or your income takes a hit, play around with the second input — the timeline for your goal — in order to adjust your per-paycheck or monthly savings requirement.

Tanza Loudenback, CFP®, is the personal-finance correspondent at Business Insider. She writes most frequently about saving money, planning for retirement, taxes, debt management, and strategies for building wealth. Have a money question for Tanza? Fill out this anonymous form.

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