Sometimes, it’s just hard to save. We’ve all felt the intense pressure from bills, obligations, and people who need us, feeling like our paycheck is gone before we know it. Let’s be honest: there are also a lot of fun ways to spend money!
It can feel daunting and almost hopeless to start setting aside peanuts today to build the six or seven-figure nest egg that we envision for the future. Here’s the thing: we only get ahead tomorrow if we set something aside today, and the process doesn’t have to be a drag.
The secrets to reliably building wealth in the long term really aren’t secrets. Most people know about the power of compounding interest, special retirement accounts, and starting today. However, unlocking what helps you as an individual save is the first step in doing what many ultimately fail to do: achieving financial goals and living well in the process.
In this post, we’re going to focus on two key methods, using a retirement account and saving in bite-sized bits. Both of these relate to a key concept: saving is easier when it’s painless, automatic and (ideally) fun!
Strategy 1: Contribute to a Retirement Account
Whenever someone else is chipping in for your financial freedom, you’re doing something right. If you have access to a 401k or employer-contributed IRA at work, you should at least contribute a tiny piece of your paycheck each month. Your employer will usually match some amount, which basically means free money for you. You also won’t pay income taxes on these contributions until you pull start pulling money from the account when you retire.
If you haven’t already, talk to your employer about withholding some of your paycheck for a 401(k). While you can’t touch this money until retirement age, this is an awesome way to save because it automatically takes a small amount out of your paycheck, and your employer will match that contribution, or at least part of it, all tax-deferred.
Retirement accounts offer the best bang for your buck when it comes to saving, but we know you need to save for nearer-term goals too.
Strategy 2: Save in bits!
Another strategy that is great to try out, especially when people are just starting on their financial journey, is to break your saving down into tiny, frequent pieces. Saving is easy when you just forget about it, and easiest when it’s fun!
Today, it’s never been easier or more fun to save a little piece of your bankroll each day and watch it grow. There are many services like Acorns and Robinhood that allow you to make recurring investments as low as $1 a day in your favorite companies, the general market, or whatever you like. The key here is to invest, every day, an amount that won’t sting at all, and commit to leaving it there.
If you find yourself in such a financial emergency that you absolutely have to pull from it, you’ll be grateful to yourself for putting it there in the first place, and doubly motivated to keep growing it.
Tiny Twigs, Big Nest
What we really like about this method is that you get to see, day by day, the cumulative impact of your savings, as well as visualize the power of compounding interest. It’s also empowering and exciting to control where your money is going, from companies you’re passionate about to broad indexes that work for you.
As we reach more and more people with our financial solutions, we see a common theme: saving is a like a muscle. The more you do it, the easier it gets. Once you start seeing those daily dollars working for you, it gets easier and easier to grow the amount you put in.
Those dollars definitely add up. Here’s a little example to consider. Let’s say you invest $1 per day in 10 of your favorite blue chip companies, and they average a market-realistic 10% growth per year. In just three years, that $10 a day would turn into nearly $13,000! Nearly $2,000 of that would just be gains on the investment, without you having to put in a dime. In ten years, that $10/day habit would be worth about $125,000, $50,000 of it “free money” from investment returns.
Even at $1 a day, you’d still have $1,300 for a trip or emergency fund in three years.
The beauty of saving this way is that it’s fun, it allows your money to work for you, and it ends the cycle of depriving yourself of large chunks of money in order to work towards your goal, leading you to dislike saving and feel like the goal can’t be reached.
One Day at a Time
Saving is like building muscle: start small, don’t hurt yourself, and you’ll get stronger with practice.
You already know what you need to do to build wealth: put some of your income aside and make it work for you. Contributing automatically to a retirement account, and building your savings every day in daily deposits or investments, are great ways to make that happen.
We know that it can be uncomfortable to start saving. Strangely, it can even feel like we lose money in the deal, putting big chunks of our hard-earned cash toward some abstract future, rather than enjoying it today. The truth is, the only way you’ll ever enjoy financial freedom is if you start paying yourself, rather than always paying somebody else.
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