You may be thinking, $100,000, that is a lot of money. That sounds intimidating, borderline impossible. Before I started my personal finance journey, I thought the exact same. Yet, here I am today, proud to save that I’ve joined the $100k club! Over the last couple of years, I saved aggressively and devised a game plan to get me here.
I currently invest roughly 60-75% of my post-tax income each month. In terms of where my money is going, I split my capital between my Roth IRA, 401(k), emergency fund, high-yield savings account, stocks, and cryptocurrencies. By diversifying my investments, I was able to significantly increase my net worth, which helped me reach my goal to save $100,000 by August 2022.
So, before you completely dismiss this idea, know that there is hope for all of us. I’ll outline some of the key steps I have taken to set myself up for success and guide you on how to save your first $100,000. By the end, you should have a solid step-by-step guide on how to reach $100k and build wealth. Let’s get started!
9 Step Process on How to Save $100k
1. Have a Money Mindset
The first and most crucial step to building wealth is to develop the right mindset. I like to think of my financial journey as my path towards freedom. A way to frame this is: What would you do with your time if you did not have to work just to get by or cover your expenses? For me, that would mean more time volunteering, reading, creating content, training for marathons, learning new languages, traveling, spending time with friends and family, etc.
Once you get into this mindset, you can then train your mind and start visualizing your path to freedom. You need to build discipline and focus on your personal and financial goals, which means prioritizing your goals and challenging yourself. Of course, this does not mean you should deprive yourself of things you enjoy, but focus on what’s important to you.
After graduating from college, I spent a lot of time reflecting on my values and spending habits. I realized I was spending most of my money accumulating things, but those things did not always align with my values or make me happier. In fact, it often made me more stressed because I was purchasing things I really couldn’t afford. For example, I used to be slightly obsessed with online shopping. However, I also highly value sustainability and the environment. You can see the disconnect here. Once I started thinking more deeply about my actions, I knew I had to change my habits and focus on only buying what I need.
Training your mind takes time and effort, so stay optimistic. Don’t be too hard on yourself if you can’t get everything right the first time. It took me a long time to adjust my mindset and find a vision that clicked in my mind. But, by reflecting on my values, I have been able to save and invest much more money than I had before and focus on pursuing financial freedom.
2. Create Specific Goals
The next step to save $100,000 is to create specific financial goals. What do you hope to accomplish? What is your vision of success? A huge problem that people face when trying to save their first $100k is that they have little savings or no savings at all.
There are many ways to visualize these goals and how to get there. A method I like to use is setting smaller milestones. I started by saving $10k for an emergency fund. Once I had that, I slowly began investing my money in the stock market. First, it was $100, then $200, then tens of thousands over time. After that, I started a Roth IRA, enrolled in my company’s 401(k), opened a high-yield savings account, and dabbled in cryptocurrencies. If I had focused only on the end goal, I would have been discouraged and quit early on. Instead, I keep the large numbers in the back of my mind and focus on the smaller goals on a day-to-day basis.
By creating milestones for your goals, they become less intimidating and more achievable. When you reach each milestone, be sure to celebrate to keep yourself motivated and focused. Rewarding yourself can be as simple as treating yourself to a drink or buying a small gift for yourself. Take some time to figure out what you want and celebrate your small wins along the way.
3. Surround Yourself with Personal Finance Enthusiasts
The easiest way to embrace your financial journey is to seek out people in your life who have similar goals. Whether it’s your partner, friends, family, coworkers, mentors, etc., find people who understand you. By having people you can talk to about money, you can build a community that will hold you accountable and on track to reach your goals.
I have a few friends that I regularly talk to about money, which I have found very beneficial for my financial growth. With my close group of friends, I am fully transparent about my salary, bonuses, savings, and investments. Finding people who understand my goals and actively encourage me to reach them has made all the difference. If you do not have anyone in your immediate circle, there are many online communities that you can join instead. I teach myself new things every day through YouTube, Reddit communities, Discord servers, podcasts, finance blogs, talk shows, and online news.
4. Automate Your Savings
Make saving money as effortless as possible! If you are getting burnt out from trying to save money, then you’re doing something wrong! The easiest way to save money is to minimize the work!
Some helpful tips I use to automate my savings include:
Throw away the mindset of spending first and saving later
Instead of spending first and then saving whatever is left, do the opposite! Every time you get paid, take some money out immediately and put it towards your emergency fund, investment account, Roth IRA, etc. This trick has helped me bring my savings rate up significantly each month. By making a habit of putting money aside first, I made it much easier for myself to save money and ensure I wasn’t overspending.
I have access to all my different accounts online, making it easier for me to transfer money between accounts. With a few clicks on my phone, I can transfer money from my checking account directly to my savings and investment accounts. You can also automate your accounts to take out money every time you get paid, so you do not need to remember to do it.
Take advantage of employer benefits
If your company has a 401(k), opt-in so your money gets automatically invested for you. The general rule of thumb here is to contribute at least up to the maximum matching contribution because that is free money into your wallet. Take advantage of any other benefits your company has, such as free food and beverages, transportation reimbursements, etc.
5. Keep Expenses Low
A commonly used piece of financial advice that I currently follow is to live below your means. The key to building wealth is to set a budget and spend less than you make. As mentioned earlier, this does not mean depriving yourself of things you love. Instead, you should evaluate your current lifestyle and eliminate things that prevent you from reaching your goals.
I keep my expenses low by regularly evaluating my spending habits and taking note of every dollar I spend. I generally try to avoid spending money on the weekdays and focus on one or two spending areas that make me most happy. For me, this means treating myself to restaurants on the weekends and paying for experiences. While I could save even more money by not doing any of these things, I still want to enjoy my present-day while looking towards my future.
I’ve recently also taken a more minimalist approach to my personal life, which has saved me a ton of money. A short documentary that I found helpful for embracing this mindset is Netflix’s The Minimalists: Less is Now. While I was watching this documentary, many of the concepts discussed strongly resonated with me. I realized I used to approach life with a consumer mindset where I was trying to add value to my life by filling it with material items. However, most of those items ended up either in the trash, donated to Goodwill, or left to collect dust in my storage. Since I started cutting back and letting go of stuff that does not add value to my life, I have had more time to make room for things that matter to me.
6. Stay Away From Bad Debt
Though the general rule is to stay away from all debt, there is a difference between good and bad debt that makes one better than the other.
With good debt, you can increase your net worth or raise your living standards. For example, if you have a 30-year fixed mortgage at a low interest rate, there is no reason to pay off your mortgage early. You are better off investing your extra money in the stock market, which will have greater returns. However, if your mortgage takes an emotional toll on you, you may want to pay it off for your peace of mind. But, psychological factor aside, investing your money somewhere else makes more sense.
Bad debt refers to debt used to purchase assets that depreciate or are used solely for consumption. An example is financing a car that you cannot afford or racking up credit card debt to feed an unstainable lifestyle. If you have the money to afford expensive restaurants, vacations, nice cars, and the latest gadgets, by all means, go for it. However, if you are financing these expenses with debt, then it’s time to reprioritize.
Being smart with your credit will go a long way to building wealth. If you carry high-interest debt month after month, you will never be able to save up enough money to reach your goals. Though I buy everything using credit cards for the rewards, I only use credit that I know I can pay back when the bills are due.
If you currently have bad debt, you need to start creating a strategy to pay off your debt as quickly as possible. If your debt is substantial, consider setting smaller milestones and working towards each one until your debt goes to zero. Think of bad debt as your enemy and do your best to wipe it out.
7. Invest Your Money
To reach your goal of saving $100k, you will need to start investing your money. Because of inflation, your cash loses value over time. Your $1 today is worth less than $1 from a year ago, so you need to put your money in securities that grow in value over time.
There are many investment vehicles you can choose from, such as stocks, real estate, cryptocurrencies, commodities, bonds, etc. To figure out which investments are best for you, you need to understand your risk tolerance, personal preferences, and financial literacy. For example, if you are risk-averse, stay away from cryptocurrencies because they are highly volatile and fluctuate in price daily. If you have limited knowledge of the stock market, stay away from options and day-trading. While they have the potential for high rewards, they are also extremely risky.
With investing, you can also automate some things to make it easier for yourself. For example, if you have an employer-sponsored 401(k), set a percentage of your paycheck to be automatically deducted into your retirement account. Some brokerages for stocks, such as M1 Finance, also offer auto-invest options, thus allowing you to automatically invest money into your account.
8. Develop Multiple Streams of Income
The easiest way to raise your net worth is to make more money. If you have limited cash flow, your path to save $100k will be very difficult.
If you feel that you are not getting paid enough in your current role, you have two main options: (1) ask for a promotion or raise or (2) find a new job. If you choose option one, do research into the average salary of your current or proposed position. Then, come up with reasons why you deserve the new rate and make a detailed proposal to your manager. If your company is not willing to pay you what you think you deserve, it may be time for you to switch to a different company that values you more. The easiest way to bump your income up is to find a company that pays you well and advocating for yourself.
If you want to diversify your income streams, start a side hustle. Depending on your skillsets, you have many options. If you like crafts, set up a shop on Etsy or Instagram. If you are good at teaching, start a tutoring gig. Other things you can do include a YouTube channel, consulting services, paid surveys, photography, dog walking, affiliate marketing, etc. Aside from my full-time job, I spend my time writing articles for this blog and studying for my real estate license.
The key here is to take advantage of any marketable skills you have and leverage them to your benefit. If you don’t have any, take some classes or do some research online to build some monetizable skills. Chances are, if you want to learn a new skill, there will be free resources available online.
9. Track Your Progress
The final step is to keep track of your progress and adjust things as needed. Once you create a plan to save money, make sure to stick to it and stay realistic about your goals. For most people, including myself, saving your first $100,000 takes time and isn’t something that happens overnight.
By monitoring your progress every month or every few months, you will know if you are on track to meet your goals or not. If you are struggling, take some time to understand why and figure out what you need to do differently. If you want to save $100,000, you need to stay focused and motivated on the target.
The Bottom Line – You Can Do It!
Saving your first $100,000 is daunting, but you can do this! In this article, we’ve laid out a sample planning process for you. All you need to do now is to take what you’ve learned and put it into action. With some discipline and dedication, we can get there together!
And the best part is that once you save $100,000, the next 100k will be much easier due to compound interest. The more money you save and invest, the faster your money will grow. Once you save your first $100k, you may even be on your way to your first million after that!
So, what are you waiting for? Start your journey towards your first $100,000 today. You will not regret it!