I’m sure you have heard it before, “Your first $100k is the hardest to reach when starting your investment journey”. And I can tell you with absolute certainty, they were right.
Now – this doesn’t mean it’s over and you should quit. The best time to start is today and make what compound interest you have left work for you.
You don’t have to be the man in the picture above. Don’t stress, it’s time to get down to business on building your first $100K. My goal is to teach all the parent’s out there, how this can be possible, even on a single income with two kids.
Want to know more about WHY the first $100K is the most important? Check out this article here.
Save, Save, Save
You want to get to the first $100K, learn to save. The goal here is to save ATLEAST 20% of your monthly income. This will be difficult at first, but some of the tips below will help you achieve that goal.
Start by setting up a budget to see what your current situation is (how much is coming in and how much is going out? What is that gap?). If you already have a gap, this is a great starting place to take that gap of money and start saving to reach the 20% goal.
Automate Your Savings
This is a no brainer and falls into the category of the reverse budget. You can read a small snippet on the reverse budget here. Give all of your dollars a job and start by paying yourself first. *Of course please make sure all of your bills are paid so you don’t default or have something shut off :D.
Don’t feel you need to do all of this at once, start small. Automate one thing at a time, until you are comfortable and your money goes to work for you.
Maximize Employee Sponsored Accounts
You can’t go wrong here. If your employer offers a match, take it. That is free money, whether it’s 1% or 6%. The goal here is to start by getting at least the match and then working your way up from there.
- One thing to note on employee sponsored accounts, check to see what you are invested in to. Most are set up with target date funds which have historically been below the S&P 500 (source: https://www.investopedia.com/articles/investing/011516/targetdate-funds-vs-sp-500-indexing.asp)
Save Tax Refunds and Bonuses
Do you often rely on a tax refund or a bonus just to keep you afloat? This year the goal will be to have your bills under control so that you can save your tax refunds and bonuses to go towards that $100K base.
This may lead you to wonder, when I receive that should I dollar cost average or add to my portfolio all at once? Honestly – that’s entirely up to you and what plan you have. Some plans (401k and Roth IRA) have caps that might limit what you can add depending on when the bonus or tax refund hits. Keep that in mind when planning.
Pay Off Existing Debt
The goal to pay of the existing debt that is considered high interest. Typically this will be credit cards and loans. We will often not include your mortgage in this debt as most have lower interest on their homes. That money would be better suited to go into investments to get the benefits of compound interest.
You have two options typically when it comes to paying off debt – the avalanche or the snowball.
- Avalanche Technique: You pay off the highest interest debt first. Any extra income you receive will go towards this one, the rest will be minimum payments until that is paid off. Once that is paid off, the extra payments from that will then go on to the next highest interest.
- Snowball Technique: This one is quite simple. You list your debts in order from lowest to highest debt. You then start with the lowest and put any extra money towards that to get it paid off quickly. Once that is paid the payment from that and any extra will go to the next lowest. The goal here is to quickly pay off the lowest portions to create that snowball effect of once you start rolling you keep getting bigger and bigger.
Increase Income
This one was bound to show up. You often have two options when trying to save more: you either have to cut expenses or generate more income. In this case if you have cut all possible expenses your next step is to generate more income. A few possible ways to do this:
- Side hustle – delivery services, online sources, power washing, snow removal, etc…
- Second W2 job
- Freelance work
- Sell items around the home that you no longer use
- Promotion – learn new skills and earn that promotion
- Raise – annual or random work towards building skills and talking to your boss about how a raise might be possible
Stay Committed
This is a big one, and often where most get lost. It’s easy to start a goal, especially when it comes to the new year or birthday’s. You’re amped up and ready to go, nothing can stop you! Until of course – it does. A bill comes up, there’s a break in the home, you get sick, something will inevitably happen. Make your plan and stick to it. You’ve got this!
What other ways have you found to get to your first $100k?
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