9/11/2012 8:30 PM ET|
How to save your first $100,000
There's more than one way to reach a financial goal like tucking away 6 figures. In fact, it’s easier if you combine several strategies.
These past few years have highlighted uncertainty. Everything that we thought would be rock solid came crashing down. Financial institutions, companies and countries have all stumbled and are struggling to get back up. Even the weather has been highly erratic. It's not at all unusual to worry and wonder how you will weather the storms that enter your life from time to time.
Financial stability, apart from being able to pay unexpected bills, fund your child's education or save for your own retirement, gives consumers the confidence and strength to go through everyday life. By saving money and increasing your income, you can move toward earning your first $100,000. And once you do that, the way to the next $100,000 can become easier.
Develop the right mindset
Saving your first $100,000 is neither quick nor easy. To get there, you need to start by training your mind. You need to understand how to achieve this goal and plan accordingly. If you are the kind of person who rarely notes your expenses or budgets, now would be the time to start. All actions need to be oriented toward achieving this goal. You could start saving money by kicking that daily Starbucks habit or taking a bus to work. If you understand that these are minor sacrifices toward a little less financial uncertainty, the going will be smoother.
Create short-term saving goals
It's all very well to imagine yourself living in a comfortable country home when you retire, but that may not get you going for now. Break down your overall saving target into short-term goals. They could even be weekly goals. For example, a man who ran a dry-cleaning service decided he would take some small change every day and put it in his daughter's college fund, starting when she was 5. This did not hinder his business or his day-to-day life, and he had a tidy sum by the time his daughter was ready to go to college.
The earlier you start, even with small amounts, the sooner you'll know you've started covering some distance in a long journey. This will help keep you motivated to achieve longer-term goals. Savings accounts, certificates of deposit, money market funds and government bonds are all good short-term instruments for savings, even if the interest rates are low. A savings account is particularly useful for an emergency fund.
Save on taxes
If you are working and your employer offers a 401k tax-deferred saving plan, take advantage of it. The amount you contribute to the plan and the earnings are tax-free until you pull out the funds for retirement. The percentage you contribute reduces your taxable pay by the same percentage. Early in your career, you can invest in stocks aggressively, when you can afford to take on some investment risk. If your employer does not offer a 401k plan, you should definitely set up an individual retirement account. Earnings in an IRA are also tax-deferred until withdrawal (unless it's a Roth IRA, where withdrawals are tax-free). To enroll in either a 401k or IRA, all you have to do is fill out a simple form and contribute. This is a structured way to save, where the interest is compounded -- and with tax savings to boot.
Reduce your interest burden
We want it all. We want the nice home, car, home theater system and double-door fridge. And with a few easy keystrokes online, we can have it. But instant gratification has a hefty price that could take years to repay. Prioritizing debt and reducing it is the first critical step toward saving. Take a close look at all of your loans, and calculate how long it will take you to whittle them down. If you have savings or fixed-deposit accounts and they're earning less in interest than you're paying on your loans, consider using that money to reduce or cancel your debt burden. If you get a bonus or a dividend, think about applying part of your mortgage to reduce your interest payments.
In the case of credit card debt, contact the issuer and negotiate a lower rate if possible. In their pursuit of new customers, card companies sometimes offer to take on other credit card debt at a lower interest rate. If you need to take out a loan, shop around carefully, and borrow money at the lowest interest rate you can find. You'd be surprised how many people don't do this. Ask friends and family members who might be willing to offer interest-free loans for a short period.
Take advantage of employee benefits
Consider how your employer can be your partner in your savings goal. Many employers match contributions to 401k plans. Contribute to the plan aggressively. Avail yourself of any additional benefits your employer may offer, like special store and activity discounts and coupons. Be sure to sign up for the company health plan. If your employer provides assistance for upgrading your skills or "back-to-school" programs, make use of any education and training that can help your career.
Generate additional income
In addition to saving strategies, generating revenue is the other tactic that can help you reach the $100,000 goal. Do you sew, do some other craft or teach? Hobbies and other personal interests can bring in extra money. You could tutor children for a few hours, or sell your crafts at a weekend market. You could spend some time researching stocks to invest in or do freelance work. Don't let any of your skills or talents go to waste. They will help you earn more money and keep you fulfilled as well.
Keep costs low
There are always things you can do to keep your costs down. Make more dinners at home instead of eating out, walk short distances rather than taking the car, read online rather than paying for magazine subscriptions, take your kids to the park or zoo instead of the local mall, buy your groceries in bulk for the month, stop smoking, take lunch to work, keep your car until it can't be used anymore, or buy a house within your means (or rent). If you aren't using that gym membership, don't renew it. Recycle and reuse, use alternative energy to light and heat your home, and sell possessions you don't use. There are many ways to save in everyday life, and those dollars and cents will add up, helping you achieve your $100,000 goal.
The bottom line
Getting to your first $100,000 can be fulfilling, with many financial and nonfinancial advantages along the way. It could mean redefining the way you live now or strengthening it. Whether that $100,000 is used for emergencies or to achieve greater financial stability, working to build it will help you develop valuable financial habits -- which should make saving the next $100,000 that much easier.
More from Investopedia:
VIDEO ON MSN MONEY
Through wisdom a house is built, and by understanding it is established; and by knowledge the rooms shall be filled with all precious and pleasant riches.
Right on. I can't remember which author used this terminology, but he used the analogy of a football team, with your earning power as the offense and your ability to avoid spending as the defense. A high powered offense will win you some games, but an airtight defense will win you a championship.
Here is my advice.
1. Never take out a credit card, and DONT get caught to 0% or 2% scams by big banks. They will ruin your credit, your careers, and ultimately your own life and sell your account to third party collectors for a pennies on the dollar.
2. Wait till you save enough money to buy your own home. The banks will give you a loan, and make all the attorneys rich by taking away your life long earnings in the name of modifications.
3. Do not open bank checking accounts unless you almost have to. Americans paid over $ 5 Billion in over draft fees, NSF funds, and late fees just in 2011. Wells Fargo is thriving on this "new product to screw their own customers".
4. Buy affordable cars that gives you at least 25 miles /a gallon. Gas companies are making billions of dollars on your hard earn money.
5. Check grocery coupons carefully after you buy, they dont always reflect at the registry. three out of five times, there is always the "Oh we just missed that items on the register.
Do this for a year, you will find more money in your wallet, guaranteed!
Message to Lionking10:
You should be very ashamed of yourself and your behavior at 57 years old! One would think by now you've grown up, instead you act as a jealous teenager, or better yet someone who hates life. You hate the cards you have been dealt and when you hear of success stories, it sets you off further by admission in your own words. Some people have wisdom, others never will! I have had very hard times in my life as well, lost my home, earlier in years evicted from apartments because I could not pay the rent, no food, no job, etc. My list goes on and on as well. I turned it around and now have a decent IRA, bank deposits, etc. You are the only one who can make the difference and turn it around. Quit your damn whining and complaining and blaming everyone else for your mistakes and your poor choices. You created your situation NOT Cartels lu ya.
People like you piss me off. I own no real estate, have no 401k, have a 13 year old van that gets 12mpg, and Monday I finally start a new job after months and months of endless searching to find a
job that isn't a scam or a trap, and it only pays 10.50 an hour, and I am 57 years old. I will never have
all the things you are complaining about: real estate that is paid off and you can't sell it for a huge profit and rip the new buyer off, etc. YOU SHOULD LOSE EVERYTHING YOU HAVE. Then you would know just how so many Americans feel. Its not about "Should I buy clothes from this designer or that designer, or can I get really good seats for the symphony?" but the reality actually is "Do I eat from the the value menu at Wendy"s, or do I put gas in the car?"
These suggestions are nothing I have not tried. I even track ever dime I spend. However, when you are a single parent of a child with autism, drive 50 miles one way to work, it seems impossible to save a dime. I get my credit card paid down and then a large unexpected expense hits. I put $50 thousand down on my home and it's now worth $100 thousand less than when I bought it. I was able to refinance under HARP, so that save a few hundred each month, but is now being spent in gas and car repairs. I fill my tank 2-3 times per week and my car has almost 100,000 miles on it. This year I had to replace the brakes, all the tires and now I have a $850 problem with my evap system.
Maybe one day I can get ahead, but this year doesn't look to be my year either.
All great suggestions except... rent? Renting is not the best way to save money. It is smarter for long term savings to invest in a home as the homeowner.
The vast mjority of us are talking about scrimping and saving and basically lowering our immediate quality of life so that we "might" have a chance at a somewhat stable future. Meanwhile a very small percentage make 100k++++ in interest on Money they made by hoarding and failing to reinvest in the economy by raising wages to match inflation or trying to avoid taxes with loopholes or by moving over seas.
Not saying we take their earnings, just that we demand that more of a real investment be made in our economy if we, as " the spenders", are expected to have the funds to actually buy products. Right now, it just is not happening for most of us. That 100k you save by puting into your 401k or eating peanut butter sandwiches is money that does not go into the economy at a time it is needed. So you save now, but cut the economy's throat at the same time. Why is this so difficult for some to see?
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'