Looking for help in becoming a financial genius? Check out our simple article for a practical look at 5 steps to save your first $100k.
We would all like to have a spare $100k in our savings account but you’re probably thinking that it’s a lofty goal reserved for the rich. We agree that saving $100k isn’t as easy as putting spare change into a piggy bank whenever you feel like it. It’s a big money goal that will need a bit of planning and discipline.
However, saving this type of money is also surprisingly easy to save a lot of money once you have the right plans in place. Keep reading for 5 easy tips on how you can become a financial genius and save your first $100k!
1. Set a SMART Savings Goal
The first step to saving $100k or any other amount is to come up with a SMART savings goal. This means your savings goals should be Specific, Measurable, Attainable, Relevant and Time-Based. So, a goal to save $100k is specific and measurable but you also need to decide on a date and if it’s attainable within that timeframe.
Also, is $100K a relevant savings goal for you? Did you pick this figure from the air or are there specific reasons why you must earn this amount? You may need to have smaller or bigger savings goals based on your financial situation.
To come up with the right savings goals you should first list your short-term and long-term financial objectives. Your main short-term goal should be to have an emergency fund. This would cover at least 3 months of your living expenses.
If you don’t have an emergency fund, then channel all your energy putting aside money for this goal. Once you pay off your necessities, every single dime should go to your emergency fund.
After setting up your emergency fund you should focus on your retirement savings plan. Experts recommend that you direct 10-15% of your income towards a retirement account. Younger people can save less but older individuals should save more to get a big enough nest egg.
Once you have an emergency fund and a retirement account you can focus on other goals like cars, homes, vacations, etc. The rule of thumb for how much to save each month is to divide the cost of your goal by the number of months you have to achieve it. If you want to buy a $12,000 car in one year then you will need to save $1,000 each month ($12,000 divided by 12 months).
2. Come up With a Strategy
The second step to saving lots of money is to come up with a strategy that will help you meet your monthly savings goals. Your cash will make itself useful elsewhere without a strict savings plan. You know how much you need to save each month, so you need to assess whether you have enough income to meet your goal.
One rule many financial geniuses follow is the 50:30:20 rule where you automatically save 20% of any income you earn. The 50% pays for your necessities and 30% pays for discretionary items like entertainment. If the monthly savings goal you determined in step one is less than 20% of your income then this rule should work for you.
If you want to reach your savings goals sooner and can afford to save a higher percentage then do so. But if your income barely covers your necessities, you may need to either earn more or cut down on your expenses. Many people have been able to retire early by drastically cutting their expenses and directing most of their income to savings and investment accounts.
A financial genius tip is to ensure you save as planned each month is to automate your savings. Set up direct debits from your current accounts to your savings accounts as soon as you get paid. This prevents you from spending money that you had intended to save.
3. Create Multiple Sources of Income
Maybe you have realized that your current income will not get you to the financial destination you desire. Perhaps our salary is just enough to cover your necessities and you are living paycheck to paycheck. Well, financial wisdom states that you must increase your sources of income.
Relying on only one way to earn money exposes you to the risk of being broke if that source dries up. This is especially the case if you trade your time for money since we have finite hours and energy. So there is a limit to how much you can earn.
To be on the safe side, try and have at least 3 sources of income. One could be a job, another could be a business and yet another could be passive (rental income, stock investment dividends, etc). Putting money aside becomes easier once your income increases.
4. Track Your Spending
Another way to increase your savings is to cut down on your expenses. Start by tracking all your expenses for a month or two. Log everything you spend money on─ even chewing gum from the corner store. You can use a phone app, a spreadsheet or even a traditional pen and paper to log your spending.
Once you review your spending at the end of the month, it’ll shock you to see how much money you can save by cutting off some expenses. You can practice smart saving by canceling subscriptions you no longer need. You may also save money by cooking more and eating out less.
5. Review Your Goals
The last of our simple steps to save 100K is to periodically review your savings goals and whether you are on track to achieve them. If you plan to save $1000 a month and the first month you only save $200 then you need to identify the issue and correct it. Self-correcting early in the savings process will enable you to meet your goals.
Use These Saving Tips to Become a Financial Genius
Many people say that the best time to start saving was 20 years ago but the next best time is now. The sooner you start saving the sooner you can enjoy the financial benefits you desire. You can become a financial genius by educating yourself and practicing discipline.
For some great tips on how to save and invest, check out the Money tips section of our blog.