How to save your first $100k

Guru investor Charlie Munger once said “The first $100,000 is a bitch”.  It sure is.  When you start out investing and saving, your money will gain very little from compounding.  Most of your growth will come from putting aside money from your salary and other side income.

Once you hit $100k though, things will start to become a little easier.  For many people $100k seems completely unreachable.  But there are countless stories of people who have been dilligent with their finances and managed to overcome that barrier.  Here are some tips you can use on your journey to ammassing your first $100k.

Save to Invest

Putting all your money into a savings account isn’t very smart.  With todays interest rates of less than 3% you’re losing out to inflation.  Your money will be worth less and less each year.  These days it’s so easy to invest in a diversified portfolio.  Using tools like Raiz, you can automatically invest your spare change.  In a Raiz account, your money will compound and hopefully grow much more than if it was in a Savings account. Or you could setup a weekly investment in an app like Spaceship or Commsec Pocket.

So change your mindset from simply saving, to saving to invest.

The sooner you start the easier it is

Thanks to compounding, the sooner you start investing the easier it will be.  Young people generally can take great risks, and therefore invest more aggressively.  Older individuals are usually looking to maintain their capital and don’t want to take risks.  Use this to your advantage.

Take advantage of Super

Australian Superfunds are one of this country’s greatest innovations.  By default most of us are already investing.  Superfunds are designed to ensure you have some money set aside when you’re retired.  When you’re young, it’s almost impossible to think about this time.  But I bet many retirees wished they had.  So if you’re in a position to top up your super, do it.  It’s tax deductible too as an added benefit.

The easiest way to grow your net worth is to increase your income

It sounds obvious, and it is.  It’s also not easy.  But there are steps you can take to be proactive about growing your income.

Think about starting a side hustle.  I started a blog as a side hustle and was able to turn it into a full-time job.   You can find some of my favourite ways to make money online here.  Even a little bit of extra income could make a huge difference over 10 years.

Keep on top of expenses

Most of the major banks offer tools to help you keep on track of expenses.  Their apps will tell you how much your spending on different things each month.  If your bank doesn’t offer it, Raiz, the investing app I recommend does the same thing.  Simply knowing how much you spend on eating out, or entertainment is hugely valuable information.  Don’t bury your head in the sand – know where your money is going so you can make better decisions about how you spend it.  You don’t need to create complex budgets.  Just have some awareness.

I like to go through my recurring expenses every few months and make sure I’m still using them – I often forget that I’ve signed up for something and realise I rarely use it.  Don’t be afraid to move phone or electricity providers etc. if you have find a cheaper price elsewhere.  It may be a hassle, but it will save you money in the long run.

Reinvest all Gains

To take advantage of compounding it’s important you don’t drawn down from your investment unless absolutely necessary.  The money in your investment account should be treated as “off-limits”.  Your super will be off-limits, but your other investments won’t be.  So it’s all about self control.  The longer you keep your money in an investment like Raiz, the greater the compounding effect will be.

It’s super hard

Saving your first $100k is super hard.  Many people will never get there.  But it can be done.  In putting together this article I came across countless examples of people in all types of situations who set a goal of saving x amount and achieved it.

Just remember that the first $100k is a bitch and it only gets better from there.

Updated for 2020 with the latest investing apps.

This post is for educational purposes and should not be considered as investment advice. This post is based on individual experience and journalistic research.

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