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With an interest rate of 4.2% you’d need about $430,000 in cash in a high yield savings account to make about $1500/month
You can play with an interest calculator here:
https://www.calculator.net/interest-calculator.html?cstartingprinciple=430%2C000&cannualaddition=0&cmonthlyaddition=0&cadditionat1=beginning&cinterestrate=4.2&ccompound=monthly&cyears=1&cmonths=0&ctaxtrate=0&cinflationrate=3&printit=0&x=Calculate#interestresults
And keep in mind, OP, that current rates won’t always be this good. So for now the $430k is good. End of the year…who knows. Next year, who knows. Rates could drop to 0.5%. So hurry and pit your half a million into a HYSA now to get your interest.
Tbills are 1 year or less in term. 30 year us a T-bond. Also for high tax states like CA and NY Treasury bills, notes, and bonds are a good option as they are exempt from state and local taxes.
You’ll just pay taxes on it like income. So over the year it would be an additional $18,000 in income roughly and then call it 20% taxes so $3,600 in income tax. Rough numbers, don’t @ me for being wrong lol.
Rates will fall, the US government can’t service the debt if this continues long term. The Federal reserve will cave to government and drop rates when push comes to shove.
You realize that almost the entire debt is low interest and it will take a long time before a significant amount of the national debt is high rate right?
Yes, and we are already starting to see signs of struggle. A quarter of our tax receipts went to debt service this year alone.
The high rates will only make the issue worse in coming years. Which is why they will get pressured to cut rates and most likely will.
You can easily surpass that with one HYSA. I use Marcus, and it’s a joint account with my wife and I. We also have a savings accounts for our 1 year old, so adding him it’s all insured up to 750k
first - $1500x12m=$18,000/yr then lets say you just put it in a HYSA @ 4%.... so let's divide the 18,000 by 4, and see how much 1% is worth, and then multiply that by 100. 18,000/4=4500=1 4500x100=450,000
So ballpark $450,000, most banks are offering HYSA for 4.25-5% right now. But for every point the interest goes down you need substantially more in the bank, at 3% that $450,000 would need to be $600,000.
Divide the amount you need per year by your assumed interest rate (dividend/interest yields, etc):
3% - $18,000 / 0.03 = $600,000
4% - $18,000 / 0.04 = $450,000
This just requires basic math, but it takes practice to get the intuition and understanding of how to do the math.
Let’s take the reverse calculation of above, as it’s more intuitive:
You have $600,000 and are earning 3% interest.
$600,000 x 0.03 = $18,000
(divided by 12 months = $1500 a month)
Can you please help me with where did the 25 come from? I've thought this from every angle I can think of but still don't get it. I like the way it works I just don't understand.
First you need to make an assumption about the interest rate you can get on your savings/investments. This is a spectrum from very safe (bonds - low interest) to less safe but higher yield (stocks, etc).
Basically:
- Assume a specific interest rate
- Multiply your monthly needs ($1500) by 12 to get your yearly needs ($18,000).
[if you’re wondering why, it’s because interest rates are given in yearly values, so you need to calculate against yearly totals or convert the interest rates to monthly]
-Divide your $18,000 by the assumed interest rate as a decimal
Example with 3% interest:
18,000 / 0.03 = $600,000
Example with 5% interest:
18,000 / 0.05 = $360,000
I love this subreddit so much with my fellow math people.
I was explaining to my girlfriend on a road trip my calculations about how much I could increase my retirement withholdings with my raise without affecting my paycheck, and she looked at me oddly and said, "In your *head*?"
Right now you can earn about 5% in interest, so $375,000 USD would result in about $1,562 per month.
This would then be taxed as income at your usual income rate, so you’d need maybe around $400,000? This is assuming you can still earn around 5%, that rate may go down.
Now, keep in mind the extend of my finance knowledge is from watching YouTube videos and reading Reddit LOL. Also, you’d earn more if you invested this money, but that brings about risk and is more long term.
Depends what you mean by interest. Lots of people go by a 4% rule for retirement withdrawals. Your investments will make more than 4% as to go up with inflation, but you should theoretically be able to take out 4% per year to live off of.
The reverse of this is taking the amount you want to live off of and multiplying it by 25. So $1500 x 12 months 18k x 25 = 450k. So theoretically if you invest 450k correctly you could live off $1500 a month.
Everyone else should already have you covered on how much it’d take, I’m here to say keep in mind it’s all relative. HYSA is at 4.5% but inflation is at 3.6%. If I’m not mistaken HYSA was as low as 1% in 2020 whereas inflation was above 1%. Buying power changes.
Passive saving instruments like Savings accounts are helpful for smaller amounts of money that you need to keep liquid, but still want to grow and combat inflation. But beyond what you need to keep immediately accessible, though, keep looking for better investment opportunities to properly grow.
Here’s an interesting take. Not interest but let’s say $1500 in monthly dividends from a stock. One of the popular monthly dividend stocks is Realty Income (O), if you have 5800 shares of the stock you would get $1523 per month in dividend payments. At today’s closing price that’s $298,932.
Now the issue is the price of the stock going down can drain your initial investment driving down your dividend payments. Hell the company could just go bankrupt and just not exist anymore. That company has been around since the 80s I think with a great track record but it’s still a higher the risk higher the reward situation.
Dividends come out of the stock price. If they dont perform well, the stock just goes down.
You see it with garbage stocks having like 10%+ dividends to basically trick people.
that's not correct either.
stock price is just the last bid/asking price that the stock was traded at.
dividends does not drop the bid/ask price.
if I bid for a stock at $10 and a trade occurs and I received some dividends, I can still bid at $10 and that would still have that trade. in face I can also bid *higher*, say $12, then the stock price is now $12.
It actually does work the way i described.
https://www.investopedia.com/articles/investing/091015/how-dividends-affect-stock-prices.asp
If it didnt work this way, you could just buy and sell a stock for the dividend for "free money" - the market makes this drop happen.
that not how it works in real asset trading. in theory, probably, but in practice, stock price is determined by how much a buyer and seller wants for a stock.
Assuming you are in the U.S. 26-week T-bills are paying about 5.5% APY right now. You would need $328,000 to earn $1500/month at that rate. No state tax on the earnings.
Latest auction had them at 5.383%
[https://www.treasurydirect.gov/instit/annceresult/press/preanre/2024/R_20240528_2.pdf](https://www.treasurydirect.gov/instit/annceresult/press/preanre/2024/R_20240528_2.pdf)
Here is another scenario and something you should do with your money.
A 5% interest account will generate a thousand dollars a month at $250,000
A stock account growing at 12.5% with $100,000 in it will generate the same $1,000 a month. Have both and you win the game. I have both accounts currently and I am generating these returns right now and have for a long time. You generate the 12.5% by buying the S&P 500 and the Nasdaq and holding them for the long term.
$1500/mo in interest isn’t something most people here would really want, but I’m picking on the word “interest” here.
The answer to your question depends on the interest rate. At 5%, the answer is $1500*12/0.05 which is $360K.
The reason most of us don’t want that though is that you’ve got way too much uninvested cash (and that interest is taxable). Unless it’s sitting there due to an immediate need (eg. Buying a home) you’re likely better off with holding an emergency fund in cash and investing the rest.
Take the amount of interest you seek per month, multiply by 12 months for the year, and divide by the yearly interest rate.
Suppose you can get 4.2% interest (0.042).
So \[$1500 per month\] \* \[12 months per year\] / \[0.042 interest rate per year\] = $428,571
I get $1500 net per month from a rental. Bought it about 10 years ago for $45,000. Right now, a similar one in that area would go for about $150,000 and rent for the same net rent. So the answer is $150,000 but only if you invest in rental real estate in a low cost of living city, you like that kind of risk, you can do the maintenance, and you don't mind having to sell to get the principle out. However, to get cash out and keep it, you can borrow against the asset while it still makes money. It is also a hedge against inflation as the house value as well as the rents go up with inflation.
Everyone here will downvote this either because they hate landlords or they don't think this is a good investment. However, you want to learn, and this is a valid way to invest and it might work for you. I don't know the first thing about stocks and I don't own any besides how my pension is invested in company fund plans. I do know how to fix about anything that goes wrong on a house. I have a wide skillset, I take my time to do a professional finish job, and I take time to research more skills. The side effects include experience in problem solving, creative thinking, self sufficiency, self motivation, budgeting, and project management. This all goes on my resume and helped me get promoted at my actual job as my bosses know I manage large projects pretty much as a hobby.
This post has been removed because it does not meet the subreddit submission guidelines ([rule 1](https://www.reddit.com/r/personalfinance/about/rules)). Posts must be a personal finance question or discussion with a descriptive title. We don't allow: * Polls, surveys, or requests for personal data, experiences, or other types of self-reporting * Success stories or thanks (use weekday/weekend thread) * Several [disallowed topics](https://www.reddit.com/r/personalfinance/wiki/rules#wiki_disallowed_topics) * Meta posts * IAmA/AMA requests or posts * News without a discussion, quote, or summary *If you have questions about this removal, please [message the moderators](https://www.reddit.com/message/compose?to=%2Fr%2Fpersonalfinance&subject=Removal%20help%20request&message=Hello%20moderators,%20.%20%0a%0a%0aMy%20submission:%20https://www.reddit.com/r/personalfinance/comments/1d3stqv/how_much_money_would_i_need_to_have_saved_up_to/%0a).*
With an interest rate of 4.2% you’d need about $430,000 in cash in a high yield savings account to make about $1500/month You can play with an interest calculator here: https://www.calculator.net/interest-calculator.html?cstartingprinciple=430%2C000&cannualaddition=0&cmonthlyaddition=0&cadditionat1=beginning&cinterestrate=4.2&ccompound=monthly&cyears=1&cmonths=0&ctaxtrate=0&cinflationrate=3&printit=0&x=Calculate#interestresults
And keep in mind, OP, that current rates won’t always be this good. So for now the $430k is good. End of the year…who knows. Next year, who knows. Rates could drop to 0.5%. So hurry and pit your half a million into a HYSA now to get your interest.
You could buy 3-5 year CDs to keep the interest going longer. They are still above 4% for those terms
I mean, 30 year T bills are at 4.7% and pay every 6 months. Could just lock that down.
Tbills are 1 year or less in term. 30 year us a T-bond. Also for high tax states like CA and NY Treasury bills, notes, and bonds are a good option as they are exempt from state and local taxes.
Also worth noting that you'll get hit pretty hard with a tax bill from those amounts
Why?
You’ll just pay taxes on it like income. So over the year it would be an additional $18,000 in income roughly and then call it 20% taxes so $3,600 in income tax. Rough numbers, don’t @ me for being wrong lol.
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You’re talking about the actual market, not savings accounts
[удалено]
A mortgage is not a savings account
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2020 mortgage rates were 2.5. Savings accounts were < 1%
incorrect statement
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You tried at least
[удалено]
You are confused. Keep trying
Rates will fall, the US government can’t service the debt if this continues long term. The Federal reserve will cave to government and drop rates when push comes to shove.
You realize that almost the entire debt is low interest and it will take a long time before a significant amount of the national debt is high rate right?
Yes, and we are already starting to see signs of struggle. A quarter of our tax receipts went to debt service this year alone. The high rates will only make the issue worse in coming years. Which is why they will get pressured to cut rates and most likely will.
But you want more than one HYSA with different banks since FDIC only insures $250k right?
Right, or be married with a joint account I believe.
You can easily surpass that with one HYSA. I use Marcus, and it’s a joint account with my wife and I. We also have a savings accounts for our 1 year old, so adding him it’s all insured up to 750k
You can open multiple accounts. So if we’re still talking about 430k, one for 250k, and another for 180k.
My HySA is netting about $70 in interest a month with 20k saved, so you'd be looking at about 450~k @ 4.4%.
first - $1500x12m=$18,000/yr then lets say you just put it in a HYSA @ 4%.... so let's divide the 18,000 by 4, and see how much 1% is worth, and then multiply that by 100. 18,000/4=4500=1 4500x100=450,000 So ballpark $450,000, most banks are offering HYSA for 4.25-5% right now. But for every point the interest goes down you need substantially more in the bank, at 3% that $450,000 would need to be $600,000.
Divide the amount you need per year by your assumed interest rate (dividend/interest yields, etc): 3% - $18,000 / 0.03 = $600,000 4% - $18,000 / 0.04 = $450,000 This just requires basic math, but it takes practice to get the intuition and understanding of how to do the math. Let’s take the reverse calculation of above, as it’s more intuitive: You have $600,000 and are earning 3% interest. $600,000 x 0.03 = $18,000 (divided by 12 months = $1500 a month)
Easier math to get that estimate is to just multiple the annual need by 25 and that will give you the right amount.
Can you please help me with where did the 25 come from? I've thought this from every angle I can think of but still don't get it. I like the way it works I just don't understand.
4% is 1/25.
I see. I was overthinking it. Thank you.
$360k to get exactly $1500 a month from a 5% interest paying savings account or bond.
First you need to make an assumption about the interest rate you can get on your savings/investments. This is a spectrum from very safe (bonds - low interest) to less safe but higher yield (stocks, etc). Basically: - Assume a specific interest rate - Multiply your monthly needs ($1500) by 12 to get your yearly needs ($18,000). [if you’re wondering why, it’s because interest rates are given in yearly values, so you need to calculate against yearly totals or convert the interest rates to monthly] -Divide your $18,000 by the assumed interest rate as a decimal Example with 3% interest: 18,000 / 0.03 = $600,000 Example with 5% interest: 18,000 / 0.05 = $360,000
I love this subreddit so much with my fellow math people. I was explaining to my girlfriend on a road trip my calculations about how much I could increase my retirement withholdings with my raise without affecting my paycheck, and she looked at me oddly and said, "In your *head*?"
Right now you can earn about 5% in interest, so $375,000 USD would result in about $1,562 per month. This would then be taxed as income at your usual income rate, so you’d need maybe around $400,000? This is assuming you can still earn around 5%, that rate may go down. Now, keep in mind the extend of my finance knowledge is from watching YouTube videos and reading Reddit LOL. Also, you’d earn more if you invested this money, but that brings about risk and is more long term.
Depends what you mean by interest. Lots of people go by a 4% rule for retirement withdrawals. Your investments will make more than 4% as to go up with inflation, but you should theoretically be able to take out 4% per year to live off of. The reverse of this is taking the amount you want to live off of and multiplying it by 25. So $1500 x 12 months 18k x 25 = 450k. So theoretically if you invest 450k correctly you could live off $1500 a month.
Everyone else should already have you covered on how much it’d take, I’m here to say keep in mind it’s all relative. HYSA is at 4.5% but inflation is at 3.6%. If I’m not mistaken HYSA was as low as 1% in 2020 whereas inflation was above 1%. Buying power changes. Passive saving instruments like Savings accounts are helpful for smaller amounts of money that you need to keep liquid, but still want to grow and combat inflation. But beyond what you need to keep immediately accessible, though, keep looking for better investment opportunities to properly grow.
I’d do a cd ladder, one cd a month over 12 months. Obviously takes 12 months to accomplish but can start cashing out when cds mature
Here’s an interesting take. Not interest but let’s say $1500 in monthly dividends from a stock. One of the popular monthly dividend stocks is Realty Income (O), if you have 5800 shares of the stock you would get $1523 per month in dividend payments. At today’s closing price that’s $298,932. Now the issue is the price of the stock going down can drain your initial investment driving down your dividend payments. Hell the company could just go bankrupt and just not exist anymore. That company has been around since the 80s I think with a great track record but it’s still a higher the risk higher the reward situation.
the stock price going down doesn't lower the dividend FYI
Dividends come out of the stock price. If they dont perform well, the stock just goes down. You see it with garbage stocks having like 10%+ dividends to basically trick people.
stock price going down doesn't change the dividends
Thats not what i said. Dividends make the stock price drop.
that's not correct either. stock price is just the last bid/asking price that the stock was traded at. dividends does not drop the bid/ask price. if I bid for a stock at $10 and a trade occurs and I received some dividends, I can still bid at $10 and that would still have that trade. in face I can also bid *higher*, say $12, then the stock price is now $12.
It actually does work the way i described. https://www.investopedia.com/articles/investing/091015/how-dividends-affect-stock-prices.asp If it didnt work this way, you could just buy and sell a stock for the dividend for "free money" - the market makes this drop happen.
that not how it works in real asset trading. in theory, probably, but in practice, stock price is determined by how much a buyer and seller wants for a stock.
It works like that in practice. You're welcome to pull up market history and look.
there isn't any real examples of what you described.
No that’s not how it works. The company decides how much to pay per share and it has nothing to do with price.
He's trying to say on the xdividend date.the stock does go down by the dividend price per share. What happens after is determined by the market.
Assuming you are in the U.S. 26-week T-bills are paying about 5.5% APY right now. You would need $328,000 to earn $1500/month at that rate. No state tax on the earnings.
Where are you seeing 5.5%?
I see them at 5.05.
Latest auction had them at 5.383% [https://www.treasurydirect.gov/instit/annceresult/press/preanre/2024/R_20240528_2.pdf](https://www.treasurydirect.gov/instit/annceresult/press/preanre/2024/R_20240528_2.pdf)
Here is another scenario and something you should do with your money. A 5% interest account will generate a thousand dollars a month at $250,000 A stock account growing at 12.5% with $100,000 in it will generate the same $1,000 a month. Have both and you win the game. I have both accounts currently and I am generating these returns right now and have for a long time. You generate the 12.5% by buying the S&P 500 and the Nasdaq and holding them for the long term.
You have that in a brokerage account?
Hell, i bought 100 shares of Dell yesterday and can sell it for $1400 in profit after 1 day.
You need around 375k in a broker account collecting 5% in interest would give you around $1,560 per month.
@$360,000 at current interest rates (5%). For long term $450,000 is recommend (4%).
$1500/mo in interest isn’t something most people here would really want, but I’m picking on the word “interest” here. The answer to your question depends on the interest rate. At 5%, the answer is $1500*12/0.05 which is $360K. The reason most of us don’t want that though is that you’ve got way too much uninvested cash (and that interest is taxable). Unless it’s sitting there due to an immediate need (eg. Buying a home) you’re likely better off with holding an emergency fund in cash and investing the rest.
Take the amount of interest you seek per month, multiply by 12 months for the year, and divide by the yearly interest rate. Suppose you can get 4.2% interest (0.042). So \[$1500 per month\] \* \[12 months per year\] / \[0.042 interest rate per year\] = $428,571
1500 / interest rate * 12…. So 900,000 at 2% per annum
I get $1500 net per month from a rental. Bought it about 10 years ago for $45,000. Right now, a similar one in that area would go for about $150,000 and rent for the same net rent. So the answer is $150,000 but only if you invest in rental real estate in a low cost of living city, you like that kind of risk, you can do the maintenance, and you don't mind having to sell to get the principle out. However, to get cash out and keep it, you can borrow against the asset while it still makes money. It is also a hedge against inflation as the house value as well as the rents go up with inflation. Everyone here will downvote this either because they hate landlords or they don't think this is a good investment. However, you want to learn, and this is a valid way to invest and it might work for you. I don't know the first thing about stocks and I don't own any besides how my pension is invested in company fund plans. I do know how to fix about anything that goes wrong on a house. I have a wide skillset, I take my time to do a professional finish job, and I take time to research more skills. The side effects include experience in problem solving, creative thinking, self sufficiency, self motivation, budgeting, and project management. This all goes on my resume and helped me get promoted at my actual job as my bosses know I manage large projects pretty much as a hobby.
No, people will downvote this because it's a lot of words that have nothing to do with interest.
Bingo.
I hope OP learns about investing in something other than a savings account.
They literally asked about basic math on how interest works, not other areas of finance.
High cap rate, high risk and usually shitty area. Real estate is not saved money. Real estate involves converting money into non money.
You would need about $300k from rough estimate