How to Build a Nest Egg
You know you should save for a rainy day, but how? Here are some easy, low-risk ways to start.
Up next in How to Manage Your Money (65 videos)
The rich didn't make their fortunes with frivolous spending. Get smart about money with these saving and budget tips.
You Will Need
- Priorities
- Sacrifice
- A savings account
- Safe investments
- A retirement account
- Fewer income-tax withholdings
Steps
-
Step 1
Prioritize
Decide what a nest egg means to you. A cushion in case you get laid off? Money for a down payment on a home? Determine your goal and how much you’ll need to reach it.
-
If you must choose between funding a retirement account or your child’s college education, many financial planners advise picking the former. Your child can apply for grants and student loans, but you can’t rely on Social Security to be around when you’re ready to collect.
-
Step 2
Trim the fat
Take a month or two to write down everything you spend, without changing any of your habits. Take a close look at what you spend money on, and figure out what you can cut—or at least scale back.
-
Step 3
Open a savings account
With the money you save, open a high-interest savings account. Sign up for automatic transfer from checking to savings. Even $10 a week adds up.
-
Step 4
Deposit windfalls
Put any unexpected money—an inheritance, a work bonus, a government rebate—into your savings account.
-
If you usually get an income-tax refund, adjust your withholdings so that you get more money in your paycheck, and divert that cash to your savings. Otherwise, you’re lending the government your money interest-free for a year.
-
Step 5
Invest in something safe
Once you’ve saved a few thousand dollars, it’s worth moving your money out of your savings account and into a higher interest-earning but relatively safe investment, like CDs or bonds, available through a bank or broker.
-
When you invest in CDs or bonds, you can only withdraw money at certain pre-determined times. Otherwise you’ll face paying hefty penalties.
-
Step 6
Start a retirement account
If your company offers a 401(k) plan, join it, and invest the maximum allowed. If not, open an individual retirement account, or IRA, through a bank or broker.
-
If you’re 25 and put $3,600 a year into investments with an 8.5% average return, you’ll have $1,064,457 by age 65.
