How to Save Your First $100,000
$100,000 may sound like a huge number right now. How could you possibly save that much when life is so expensive? What if we told you it is possible to save $100,000 in less than 10 years?
It is possible! It starts with your mindset and your habits. In this article, we provide simple tips you can implement now.
Whether you save right away or it takes a while doesn't matter. The bottom line is that the habits become routine. Before you know it, the money starts adding up. Compound interest and salary increases start to take effect too. Looking back, you will be glad you took those first few baby steps to get you on your way.
You may have heard that the first $100,000 saved is the hardest. We don't think so. In fact, we believe that the earlier you start, the better. Small baby steps can get you where you want to be much sooner than it looks. Giving up that $5 coffee today won't net you $100,000 in a year, but it is a step in the right direction. This is what we will focus on to help you get to the point where you can say that you, too, have $100,000 saved.
Starts with Your Mind
Training your mind is the hardest part of the process. You have to get it on board with your goals. Start by writing your goals down.
I'm not saying it will be easy to change your habits. Some will be easier than others. The key is to stay consistent. Once you train your mind, the rest falls into place.
It doesn't help to set large goals and then make major sacrifices in every area of your life. This only sets you up for failure. It takes at least 21 days (usually more) to create a new habit. Be patient with yourself. If you give up daily $5 coffees, but find yourself giving in one day, don't beat yourself up. It may take a little longer to let the habit stick. Start with a habit you know you can change and stick with it for a few weeks. The excitement of this initial change will push you. Then you can add on other habits. Here are a few examples:
- Throw your change from every cash purchase into a jar. This won't make you rich, but it starts a new habit. Suddenly what seemed like spare change can total hundreds of dollars. This small habit can add up to big changes over many years.
- Don't buy lunch out every day at work. Instead, bring a sack lunch. If this is hard for you, start with just one day a week. Once you get used to it, start bringing your lunch more often each week. Eventually, you will start saving a significant amount of money.
- Only purchase food that is on sale. This takes a little more time and legwork, so start small. Start by only purchasing new foods (thing you don't need on a regular basis) if they are on sale. This way, you save money but still get what you need.
Become a Record Keeper
Here it comes: the dreaded word "budget." Yes, you need one if you are serious about saving. Creating a budget isn't enough, though. You have to keep track of every penny you spend. You can automate the tracking with a variety of available software options. If that is not your cup of tea, then make a spreadsheet and update it at least a few times a week. Whether you pay with a credit card or cash, record it. After 3 months, look at each category. Pay careful attention to the categories where you overspend and figure out how to change it.
This goes back to our small changes. If you notice a category in which you overspend, consider the reasons why. Then make small changes to see big results.
When we say look at your categories, we mean every category. Let's look at transportation. We don't just mean your car payment. It also means everything you pay for the car to work, such as:
- Car washes
- Supplies for inside the car
The little things add up. Your $300 car payment might not seem like a lot, but when you add in the other expenses, it could double or triple in cost. For example, if your car needs frequent maintenance, you may save money by buying a new car. Look at the big picture and see where you can save.
Just Say "No"
You can only save money if you become a careful shopper. In this world of instant gratification, we are all guilty of buying things we don't need. Before you buy that "awesome gadget" or the dress you "must have," take a step back. Sleep on it if you can. If you wake up and still feel like you need the item, buy it. Chances are, though, you will change your mind or even forget about it.
Another way to "just say no" is if you don't have the cash, don't buy it. This helps you limit the things you buy. If you really need or want the item, you will save for it. If it isn't that big of a deal, you will pass it up and save money instead.
Now that you know how to have money to save, you need to know how to save it. You must learn to be an aggressive saver. $20 a week is not going to cut it, so don't think giving up your coffee habit is all it takes. Once you have the extra money to invest, here are some simple ways to do it:
- Use your company's 401(k): If you work for an employer that offers a 401(k), use it. Right now, you could put up to $18,000 in your 401(k) per year. This is pre-tax money, too. Consider how much you could contribute and make it automatic. This way, you save it no matter what. If your company matches your contributions, make your contributions as large as you can. It's like getting free money. But remember, diversifying the portfolio is the best way to avoid major losses.
- Start a Roth IRA: Even if you invest in a 401(k), you can still save up to $5,500 each year in a Roth IRA. This might not happen right away, but when you have the money, know this option is available. Over the years, the interest compounds and you make money even if you don't invest new money into it.
- Invest in stocks: If you still have money to invest, consider stocks. Aim for a minimum of a 5% return. Even non-aggressive stocks offer this type of return. However, you must reinvest your dividends to make this happen. Over time, 5% will seem like nothing as you start making higher returns on your investments.
Things Start Changing
After a few years, you will notice a shift in your savings pattern. It becomes easier to save, either because you received a raise or your returns pay for themselves. If you are lucky, you will have both happen:
- Raises: Chances are you will receive a raise eventually. Before you spend the new money, consider investing it. You already created the habits to start saving. Now you can save even more. You can make the investments automatic. You know you can live on X number of dollars right now. Why not invest a majority of the extra income you just received? This gets you that much closer to saving $100,000.
- Investment Returns: Your investments also start paying for themselves. Once you have enough invested, the returns become larger. These returns become much larger contributions than you could ever make. This is why many people consider the first $100,000 the hardest to save. Once you have the investments started and returns coming in, the rest just falls into place.
The Bottom Line
It's not as hard as you think to save $100,000. Yes, it takes patience and dedication, but it is possible. Keeping track of everything helps you see the big picture. After a few months, take inventory of your savings. It might not be huge, but it is a start. Keep going and eventually you will be able to say that you saved $100,000 too.