In my most recent net worth update I crossed the $50,000 milestone. Here’s 7 lessons I learned from saving my first $50,000.
1. Maxing out my 401(k) made saving unbelievably easy. In my first job out of college my salary was $52,000. The most I was allowed to contribute to a 401(k) over the course of a year was $18,000 so I did just that. I set up my 401(k) account to deduct 30% of my earnings from each two-week paycheck and invest 20% of the money in an all-market bond index fund and the other 80% into an all-market stock index fund. A simple investing strategy with minimal management fees. The end result? My 401(k) account grew to over $16,000 in around 10 months.
2. Income is important, but all that matters is retained income. I know plenty of people my age who were making more than $52,000 when they first graduated. But very few of them were saving any of it. Instead, they were (still are) paying off student loans by the bucket-load and buying new cars to show off to their social media followers, most of whom didn’t actually care. By graduating debt-free and continuing to live like a college student, I was able to save a huge chunk of each paycheck. I wasn’t in the 1% income bracket for my age, but there’s a good chance I was in the 1% retained income bracket.
3. Developing the habit of checking my credit card statements online once per week kept my spending in check. Each weekend I would (and still do) see what I spent during the previous week. I found that checking once a week was frequent enough to keep an eye on my finances while not being overly obsessive. This kept me accountable for my spending and I always knew where my money was being spent.
4. Savings contribute to the first $50,000 far more than compound interest. If I had to guess, I would say compound interest has contributed around $2,000 – $3,000 to my total net worth. The other $47,000 – $48,000 is purely savings from 9-5 paychecks, tutoring statistics on the side, and a bit of blog income. Savings is literally all that matters in the beginning of a financial journey. I used to think I needed to be an investment guru, but I quickly realized that being an income machine and saving a high percentage of my earnings was far more important.
5. Saving the first $50,000 is like getting a flywheel to start spinning. Just to get it spinning can be very slow and boring work in the beginning, but once it starts to spin it only gets faster and faster. Over time, as my savings continues to increase, compound interest will begin to help push my net worth higher at a faster rate. It took me about a year to save this $50,000. I predict the next $50,000 will take 8 – 10 months.
6. Saving money requires habits and systems, not motivation. Saving money is easy when it doesn’t require weekly motivation. The reason I can max out my 401(k) is because I don’t even see those savings hit my bank account. The reason I don’t time the market is because I have my Vanguard account automatically set up to invest in index funds on a regular basis for me. I have my Ally Savings account set up to withdraw money from my checking account purposely to keep my checking account balance low. This tricks me into thinking I have less money to spend than I actually do. I don’t need motivation week in and week out to maintain my healthy financial habits. I have systems in place to do it for me.
7. Saving money is about eliminating the ego. I used to have an inflated ego in high school and my early years of college. I thought everyone was watching me, that I was important, that I needed attention, that the things I bought and showed off on social media actually mattered. Over time I have discovered that I’m not so important. Nobody is watching my life unfold, nobody is waiting to see what type of car or house or new gadget I buy. This realization has helped me cultivate a mindset of minimalism. I no longer feel the need to spend to show off for people. I only spend on things that bring me joy and add value to my life. Personally that means more Chipotle and less new clothing. By keeping my ego in check, I don’t have a desire to spend excessively to flaunt my success.
Zach is the author behind Four Pillar Freedom, a blog that teaches you how to build wealth and gain freedom in life.
Zach's favorite free financial tool he's been using since 2015 to manage his net worth is Personal Capital. Each month he uses their free Investment Checkup tool and Retirement Planner to track his investments and ensure that he's on the fast track to financial freedom.
Although the bulk of his net worth is invested in index funds, his favorite place to invest in individual stocks is M1 Finance, a site that allows you to build a custom portfolio of stocks for free.
His favorite way to save money each month on his recurring bills is by using Trim, a free financial app that negotiates lower cable, internet, and phone bills with any provider on your behalf.
His favorite micro-investing app is Acorns, a free financial app that takes just 5 minutes to set up and allows you to invest your spare change in a diversified portfolio.
His favorite place to find new personal finance articles to read is Collecting Wisdom, a site that collects the best personal finance articles floating around the web on a daily basis.
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