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Compound interest formula: A = P(1 + r/n)^(nt), where A = final amount, P = principal, r = annual interest rate (decimal), n = compounding periods per year, t = years. Example: 10,000 dollars invested at 7 percent compounded monthly for 20 years: A = 10,000 x (1 + 0.07/12)^240 = about 40,387 dollars. Common compounding frequencies: annual (n=1), quarterly (n=4), monthly (n=12), daily (n=365); continuous compounding uses A = Pe^(rt). The Rule of 72 approximates doubling time: 72 divided by the rate in percent, so about 10.3 years at 7 percent and 7.2 years at 10 percent. Starting early matters more than the amount: 200 dollars a month from age 25 to 65 at 8 percent (monthly compounding) grows to about 698,000 dollars, while the same 200 dollars from 35 to 65 reaches about 298,000 dollars, less than half the result for 75 percent of the contributions. Past market returns do not guarantee future returns.

Targets depend on the lifestyle you want and when you plan to stop working. A widely used planning rule is the 4 percent withdrawal rate: withdrawing 4 percent of a portfolio in year one, then adjusting for inflation, has historically lasted about 30 years in most US market periods, so a 1,000,000 dollar portfolio supports roughly 40,000 dollars a year. People planning longer or early retirements often use 3.3 to 3.5 percent instead; the FIRE community targets 25 times annual expenses. US contribution limits for 2026 (IRS): 401(k), 403(b) and 457 plans 24,500 dollars, plus an 8,000 dollar catch-up from age 50; IRAs 7,500 dollars, plus a 1,100 dollar catch-up from age 50. Check irs.gov for HSA limits and income phase-outs. Social Security: with a full retirement age of 67, claiming at 62 reduces your benefit by 30 percent, and delaying to 70 adds delayed retirement credits of 8 percent a year, or 24 percent above the full-retirement-age amount (ssa.gov).

Fixed-rate mortgage payment formula: M = P[r(1+r)^n] / [(1+r)^n - 1], where M = monthly payment, P = loan amount, r = monthly interest rate (annual rate / 12), n = number of monthly payments. Example: a 400,000 dollar loan at 6.5 percent over 30 years: r = 0.065/12, n = 360, so principal and interest come to about 2,528 dollars a month, or about 910,180 dollars over the full term, of which roughly 510,180 dollars is interest. Principal and interest are only part of PITI (principal, interest, taxes, insurance). Property tax rates vary widely by state and county, and you may also pay homeowners insurance, HOA fees and, with less than 20 percent down on a conventional loan, private mortgage insurance. Example: a 500,000 dollar home with 20 percent down at 6.5 percent: 2,528 principal and interest + about 500 property tax + about 150 insurance = about 3,180 dollars a month. Under the common 28 percent front-end guideline, that payment calls for a gross income of roughly 136,000 dollars a year; the back-end guideline caps all debt payments, housing included, at about 36 percent.

The standard guideline is 3 to 6 months of essential expenses, not income. Two stable incomes in the household often justify the lower end; a single income, self-employment, commission pay or a cyclical industry argue for 6 months or more. Count only essentials: housing, utilities, food, transport, insurance, minimum debt payments, childcare and medical costs. Example: with 5,000 dollars of essential spending a month, the target is 15,000 dollars (3 months) to 30,000 dollars (6 months). Keep the fund liquid and low-risk, for example in an insured high-yield savings account, a money market fund or a short CD ladder, and not in stocks. Yields change with central bank rates, so compare current APYs before choosing. A common sequence is a small starter fund first, then paying off high-interest credit card debt, then building the full 3 to 6 months. Rebuild the fund as soon as you use it.

Net worth = total assets - total liabilities. Assets include cash, savings, investment and retirement accounts (401(k), IRA, brokerage), your home at market value, vehicles at current value and business interests. Liabilities include your mortgage balance, auto loans, credit card balances, student loans, personal loans and any HELOC. Example: assets of 5,000 checking + 25,000 savings + 180,000 401(k) + 45,000 IRA + 35,000 brokerage + 475,000 home + 18,000 car = 783,000 dollars; liabilities of 285,000 mortgage + 2,000 credit cards + 28,000 student loans + 12,000 auto loan = 327,000 dollars; net worth = 456,000 dollars. For comparison, US median household net worth by age of household head (Federal Reserve Survey of Consumer Finances 2022): under 35 about 39,000; 35 to 44 about 136,000; 45 to 54 about 247,000; 55 to 64 about 364,000; 65 to 74 about 410,000 dollars. Recalculate every quarter and watch the trend. Many planners leave out the primary home when judging retirement readiness, because you still need somewhere to live.