9 Financial Habits That Helped Me Save $100,000

Angela Mae
©iStock.com
©iStock.com

According to the Bureau of Labor Statistics, the average American household spends $6,081 a month on fixed and variable expenses. This includes things like housing, food, transportation, debt, healthcare, education, clothes, entertainment, insurance and miscellaneous items.

In contrast, the Federal Reserve’s latest data found that the average person only has about $8,000 in savings. That’s only enough money to cover about a month and a half’s worth of expenses — if you’re being frugal.

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If you want to save $100,000, it’s easy to feel overwhelmed. After all, that’s a lot of money. But at the same time, that sum could get you through some seriously tight financial spots, grant you peace of mind and help you achieve other goals along the way.

So, how do you do it? Here are some of the top money habits that financial experts said helped them save their first $100,000.

Create a Realistic but Strict Budget

“Saving and managing large sums of money is fundamental to my professional and personal life,” said Adam Horvat, director of finance at Digital Silk. One key financial habit that helped him save $100,000 was having a strict budget.

But creating a budget is one thing. Following it is infinitely more difficult, especially if you’ve never had to do it before. That’s why practicing financial discipline is so important.

“Budget planning and lifestyle adjustments require discipline and a cultivated understanding of needs versus wants,” said Horvat.

For example, you need food to live, but you probably don’t need to go out to eat twice a week and order appetizers and drinks. You might also want to fly business or first class for an upcoming family visit, but a cheaper economy ticket will also do.

Take a look at your living expenses and determine how much you’re spending on the different things in your life. Then, separate your costs based on things you want versus the things you need. If you find areas you can cut back, you’ll be able to save more money.

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Reduce Expenses and Save or Invest the Difference

You don’t want to lessen your quality of life, but if your goal is to save $100,000, you might need to make some sacrifices.

“Saving $100,000 might seem intimidating, but over time, it can be done,” said Scott Lieberman, founder of TouchdownMoney.com. “Cutting $5 here and there seems small, but it can really help. Cutting one meal out per week can save you about $75 a month. That alone can give you $900 per year to invest.”

If you invest that $900 in an account that earns compounding interest, you’ll start seeing your money grow on its own over time. The more areas you can cut back on spending and invest instead, the faster your savings balance — or investments — will increase.

Spend (Much) Less Than You Make

A frugal lifestyle isn’t for everyone, but if your biggest goal is to save a large amount of money, it might be necessary. This means cutting out the excess, budgeting for everything and saving every dollar you can.

But it also means spending less than you make.

“Living below my means and forswearing unnecessary luxury purchases have proven extremely beneficial,” said Horvat. Again, saving or investing the money you would have otherwise spent can help you get to your $100,000 goal much sooner, too.

Make Conscious Spending Decisions

“Spend sensibly,” said Lieberman. “Saving doesn’t always mean buying the cheapest thing. Buying products that reduce your bills can pay off in the long run, giving you more to invest.”

Invest in items of quality rather than quantity. Whether it’s high-quality clothes and shoes — not necessarily designer-brand — or appliances for your home, the longer they last, the less often you’ll have to replace them. Then, that money you might have otherwise spent can be invested in something that helps you grow your net worth.

Set Goals (and Follow Them)

Setting financial goals is key to saving money, but it won’t work if you don’t take steps to follow them. Start small so you don’t get overwhelmed.

“Saving something manageable, such as $100 in two weeks, can help you get started,” said Lieberman. “Once you meet that goal, invest the savings and set a harder goal.”

You can also set goals based on a percentage of income, like Horvat did.

“Regular savings can start with as little as 1% of your income,” he said. “Gradually increase this and aim to save at least 20% eventually.”

If you’re struggling to keep on top of your savings, you may want to automate them instead. That way, you can still work toward your goal without the hassle.

“Establish a regular saving plan,” said Horvat. “Transfer a set amount from your paycheck into a high-interest online savings account every month without fail.”

Get Rid of Debt

“While it may sound counterintuitive, the first step to saving $100K is to pay off your debt. To pay off your debt, you need to get on a budget and make paying down debt a priority, not something you do with money left over,” said Jay Zigmont, PhD, CFP®, founder of Childfree Wealth®.

Whether you owe $1,000 or $100,000, any debt is ultimately just going to drag down your finances. And if you have high-interest debts, you can expect to spend a lot more of your hard-earned money on interest payments than you wanted.

Once you don’t have any debt, you can then focus on saving or investing your freed-up cash more aggressively.

Prioritize Your Savings

Make sure you have a clear idea of where you’re keeping your money as you build toward $100,000.

“Your first savings goal should be three to six months of expenses in a high-yield savings account (HYSA),” said Zigmont. HYSAs have a much higher rate than traditional savings accounts, meaning your money can grow more quickly in the account. And since they’re easily accessible, you’ll be able to withdraw from the account in case of emergencies.

But once you have an emergency fund, Zigmont suggested maxing out your retirement accounts — like your 401(k). That way, your money can continue to grow and you can work toward long-term financial stability, too.

Diversify Your Investments

Having a diversified investment strategy can also go a long way toward helping you reach that $100,000 mark.

“I diversified my investments across real estate, stocks and bonds. This not only accelerated my savings but also minimized risk,” said Horvat. If you want to do the same, he suggested educating yourself or getting advice from a financial advisor to understand your own risk tolerance and set goals accordingly.

Keep Building Income

Last but not least, you’re going to want to find ways to keep improving your income.

“I put my skills to use and took on some freelance projects to supplement my full-time job income,” said Horvat. “Never underutilize your skills. Identify ways to generate more income and accelerate your saving rate.”

You could also ask for a raise at work, seek a promotion or build passive income streams on the side. As your income grows, keep your expenses the same and save or invest the extra cash.

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This article originally appeared on GOBankingRates.com: 9 Financial Habits That Helped Me Save $100,000

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