I recently watched a video where the vlogger talked about how a person's net worth increases faster once they have achieved $100,000 in savings. The reason for that is that money makes money.
Thinking about having $100 K in capital has the potential to change the trajectory of the future for my family and the future generations. Having $100,000 would open up many opportunities.
Let's be honest here; I have no illusions about becoming a millionaire or anything like that. But having $100,000 could do a lot for me, my spouse, my kids, and my grandkid(s). Those of us who are not born into financial wealth cannot fully benefit from our 'money making money' until we reach certain financial milestones, like having $100,000 saved. When this milestone has been reached, it gets easier to build financial wealth.
Here's what I could potentially do with $100 K:
- Have enough capital to secure funding to open a business
- I could partially retire
- I could have the financial backing to switch careers
- I could volunteer to causes that are important to me
- I could gift the cost of post-secondary education to my grandkid(s)
There is so much that would be possible with that level of capital - the opportunities are endless!
But before I can plan to utilize that money, I must first save the money. I have a reasonably stable job that I enjoy, with a reasonable income. Earning around $60,000 per year, I could possibly earn and save $100 K over the next 10 to 12 years.
The Plan to Save $100 K
Step One: Calculate how much I would need to save for a specific time period.
- Using a 15 year goal, I would have to save about 11.5% of my annual income, or around $575 per month.
- Using a 10 year goal, I would have to save about 17% of my annual income, or around $850 per month.
- Using a 20 year goal, I would have to save about 8.5% of my annual income, or around $425 per month.
Step Two: Choose which goal I intend to use.
With the state of the current economy, finances are tight for everyone. Just because we are good with money doesn't mean that inflation doesn't affect us. However, I do know that if I aim for a higher savings rate, like 17%, I am more likely to save more than if I aimed for 8% savings.
With that being said, I am going to aim for 15% of my income, which equates to $750 per month.
Step Three: Calculate and Allocate the monthly amount.
Looking at my monthly statements, I have determined that I am saving $480 per month currently in various savings, investment and retirement accounts. It would be ideal if I could save $750 per month over and above my current savings, but I think it would be better to include current savings for the time being. As I increase the savings amount, I will get a 'win' once savings reaches the $750 per month goal, and I will feel more accomplished - then I can tackle increasing to the $750 amount above current savings amounts.
Based on my current amounts, I will the have to budget in an additional $270 per month. This will certainly tighten my budget significantly and may take some adjustments along the way. I don't want to set myself up for failure so I may not allocate the full $270 immediately, but make some incremental increases toward that amount.
Step Four: Automate
The easiest, least painful way to reach my savings amount is to make it automatic. I can set up pre-authorized transfers of cash from my chequing account into one of my investment options. There are two choices:
- I can have a certain percentage or dollar amount taken from my paycheque and deposited into my workplace retirement account before I ever see payday.
- I can set up an automatic transfer from my chequing account to my investment account outside of my retirement funds.
To be entirely honest, I am leaning toward putting the additional funds to my non-retirement investment account. The reason being that should something unexpected happen, I would possibly need to access these funds. The workplace retirement pension account is locked-in and inaccessible in an emergency.
By automating the transfers, I won't have to think about it and it will happen even if I am not paying attention to my accounts that day or week. Again, the easier it is to do, the more likely it is to happen.
Step Five: Budget the amount.
This may be the hardest part of the process. I will have to go through my budget to 'find' two hundred and seventy dollars to allocate to investment savings. Typically, I would start with variable expenditures like groceries, or eating out. Considering the current economy and the high costs of everything these days, this may prove to be difficult to do right away, and will be even more difficult to maintain month over month.
Thank you for reading this far, and if you feel so inclined, I would love if you would leave a comment to let me know that someone is reading my little blog. I will try to post an update in a couple of months to let you know how it's going.
- Auntie
