Activity Idea: How To Save $100,000 By the Time You Turn 30
I saw this headline in the USA Today and expected something other than a listicle with 10 ways to get to $100K by 30 (including advice such as “go to a cheap school” or “avoid credit card debt.”). I thought this would be a great question that would enable students to flex their Excel (or Google Sheets) muscles to figure out how they could get there.
Here is link to the spreadsheet. Remember to have students copy the spreadsheet before completing the activity. As a teacher, you can modify the spreadsheet based on the Excel skills of your students. The base version has all of the formulas already added. Students have three key assumptions to play with:
- Starting Salary (they see an average for 2015 graduates but can plug in any number they wish)
- Savings percentage (how much of their gross pay will they be saving)
- Investment returns (they receive ranges for three options: savings accounts, bonds, stocks)
By providing them with a table, students can see the impact of their decisions on getting to their goal of $100K by 30. Here are the columns in the spreadsheet with descriptions:
- Salary – copied from Assumptions table for Year 1. Increases at rate of inflation, which is assumed to be 3% for years 2-8.
- Starting Balance (for Savings) – is $0 in Year 1; for year 2-8, it is the Ending Balance from the previous year.
- Amount Saved – determined by multiplying the Savings Percentage (from Assumptions table) by the Salary for that year.
- Savings Balance – calculated by adding Starting Balance + Amount Saved in given year.
- Investment Returns – calculated by multiplying Savings Balance by Investment Returns (from Assumptions Table). The simplifying assumption here is that the Investment returns are earned for the entire Savings Balance.
- Ending Balance – calculated by Adding Savings Balance + Investment Returns
Ultimately, what students will take out of this exercise, is that the main driver of how much they will have in savings at the age of 30 is their Savings Percentage. Even if you assume an 8% investment return (the highest option), students will discover they need to save about 17% of the average salary to get to this target of $100,000. The key question for discussion is how they will set a target which is both reasonable and one that will enable them to have an adequate amount saved by the age of 30. Enjoy!
About the Author
Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.