How much to save monthly to earn 15M in 20 years?

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How much should you invest every month in order to earn ₱15 million in 20 years? This is a question that was posted on one of the Facebook groups, and I thought this is a really good question that is worth answering.

You can actually use spreadsheet or a calculator with the capability to compute future values. In my case, I use Excel because it’s easier. It is also easy to generate the figures to track the growth of money over time. To start, here are the givens:

  • Time horizon: 20 years
  • Goal: ₱15 million
  • Savings strategy: saving monthly

Monthly savings

There is no one answer to this question. That is because the estimated required monthly amount depends on how much the investment is going to grow each year, which in this case I’m going to refer as rate of return or simply return. This rate of return can be the interest (such as from savings account or time deposit), dividend (like Pag-ibig MP2) or capital growth (in the case of equities or index funds).

Understand that for us to estimate the amount of your monthly savings, the return must be known. So what I did is to come up with estimates based on assumed yearly returns of the investment. In the table below, you’ll see that the returns range from 1% to 12% each year for the next 20 years. And for each return, there is a corresponding minimum amount to save.

ReturnMonthly savingsYearly Total
1%56,769.14 681,229.72
2%51,445.90 617,350.77
3%46,519.63 558,235.61
4%41,977.19 503,726.25
5%37,803.23 453,638.81
6%33,980.70 407,768.35
7%30,491.16 365,893.89
8%27,315.26 327,783.13
9%24,433.09 293,197.13
10%21,824.53 261,894.37
11%19,469.55 233,634.55
12%17,348.48 208,181.70

So if an investment earns 1% every year for the next two decades, the amount of monthly saving is ₱ 56,769.14 for an annual total of ₱681,229.72. And if you have an investment that earns 12% every year, then the required investment per month is ₱17,348.48 for a yearly total of ₱208,181.70.

You may also notice that the higher the return, the lower your required savings.

20-year Projection

Here is a table that shows the projection of your investment. You may click the link to visit the computation through Google Sheet.

Limitations

Now, remember that the above is only math projections, and because they are projections they may not reflect what’s going to happen in reality. Here are some of the limitations that you should know.

Rate of return may change

It’s quite difficult to predict in the future how much you’re going to be earning from mutual funds, UITF, PERA, VUL, or exchange traded fund. Even time deposits change interest rates frequently, as well as the dividends given by Pag-ibig MP2.

The only savings mechanisms that have generally constant return are savings account, bonds and long term negotiable certificate of deposits (LTNCDs). The issue with them is that the returns that they can give are relatively small, and in the case of bonds and LTNCDs their term may only last as long as 5 years or 10 years before they’re redeemed.

Yearly compounded interest

The formula used in the projection assumes that the interest is credited to the account every year. The estimates won’t work when the returns are given quarterly (such as the what’s generally practiced in savings account or time deposit).

Fees

Another factor that you have to take into account are the fees. When you invest in a mutual fund, UITF, PERA, VUL or ETFs, there are charges such as sales load, management fee, exit fee. All of these actually reduce the actual potential income that you can derive from them.

Taxes

Lastly, taxes are also going to eat into your investment. Time deposit and savings account have capital gains tax of 20%.

Next step

Now that you’ve seen the projection, maybe it is time that you look at your current financial status and draw up the financial goals. The goal of saving 15 million pesos in 20 years sounds like a plan for retirement, and that’s a good start to thinking about your future needs.

What you can also do is to start looking in the market any investment options that can give you the desired returns. I’ve written about incredibly easy passive income options to augment whatever cash flow you’re already generating from your work or business. Just make sure that you understand what these investments are, how they earn or increase their value, and how you can monitor your savings.