According to Investopedia, a “nest egg” is a term used to describe a substantial sum of money that has been saved or invested for a specific purpose. “A nest egg is generally earmarked for longer-term objectives, the most common being retirement, buying a home, and education.” Essentially, a nest egg is your long term savings.
Most of the CGS members fall within the millennial generation, where long term saving is mainly our 401(k) contributions. What about all of the things we want out of life? A nice home, a new car, a legacy for our children.
Living in that fancy apartment is wonderful, but the rent money isn’t coming back to you. The CGS Team is sharing four easy tactics to help you start carving out your nest egg. Starting small now will make a big difference in the future.
Set Up a 401(k) or IRA
The best way to set up your nest egg is to contribute to a 401(k) plan, or an IRA if your employer doesn’t offer a 401(k). If your employer does offer a 401(k) plan, start contributing immediately.
Most companies offer contribution matches up to a certain percentage. This is essentially free money! Since you won’t be using this money (or you shouldn’t, at least) until retirement, it can help ease the burden of life after retirement.
Some 401(k) plans also let you take cash out to help pay for a house, general repairs, or personal loans. This is not recommended, but it’s there if you absolutely need it.
If you don’t have a 401(k) plan, you don’t have that option. If you aren’t sure what investments to select when setting up your 401(k) plan, check out the article How I Picked my 401(k) Selections for great insight.
Downsize Where Possible
This specifically applies to your living situation and your car. Are you living in a nice loft in Manhattan? Are you renting a house on the beach in California? If yes is the answer, and you are actually paying for it, then you may be living larger than necessary.
When it comes to apartments and rental homes, the money you are paying for rent each month is not actually paying anything down. If you were paying the mortgage on your own home, that’s a different story.
Start thinking about your living situation. Is your rent high for your location? Could you move to a less expensive neighborhood? Start thinking of how you could downsize to help cut your expenses.
The same thought process should be applied to your car. Do you have a shiny, new Mercedes? Are you leasing a BMW? If you’re driving a luxury car, did you take out a loan? Do you know how much interest is costing you?
What about insurance? Insurance is much higher depending on the car you drive. A nice car is a status symbol, but brands like Mazda, Hyundai, and Acura are making affordable cars with comparable characteristics to luxury cars.
If your car payment is taking up a majority of your paycheck, it may be time to downsize.
Supplement Your Income
Can’t seem how to figure out how to save more money? More income should help!
Nowadays, a full-time job does not provide enough income to create a substantial retirement, even if you’re with the company for 30+ years. Most people need to look for alternatives when it comes to saving for the future.
The best way to do that is to bring in more income. This could be through a second, part-time job, through long-term investing, or by starting your own business. Check out the article 8 Easy Ways to Make Extra Money for some more ideas on how to bring in more cash.
Live a Raise Behind
According to Banking My Way, “One of the easiest ways to build that nest egg is to live a raise behind. The next time a raise comes along, instead of increasing your lifestyle to meet the higher income, pretend the raise never came and continue to live on what you were earning before.”
The article continues: “Make sure to siphon off whatever the raise amount was into one of your retirement accounts. Continue to live a raise behind, and your nest egg should look quite healthy upon retirement.”
The CGS Team could not agree more. Think about it: you got by perfectly fine before the raise. Since you already know you are capable of living off that salary, keep it going!
The thing is, you don’t need to make a lot of money to save and live comfortably in the future. All it really takes is discipline and a general knowledge of your financial situation.
Living within your means goes a long way. It’s hard with today’s society, but it pays off in the end.
What are you doing to set up your nest egg? What types of long term saving are you currently doing? Let’s get vocal about finances! Leave a comment below to share.