Through a combination of investing, and limiting expenditures, I was able to save over $300k in 4 years. I did this just a year ago when I was 29 and the thing is, I didn’t really have to do anything too extreme. Although I consider myself very fortunate to find a great career, I certainly believe that anyone can grow large amounts of wealth over time. It may not be as much or as fast but with a little bit of discipline and patience, you can be surprised how much you can earn in the long run. Here is what I did…
I learned how to invest
If you wanna skip this part, just put your money in an Index Fund like the Vanguard 500…
Many have this perception that the stock market is inherently risky however, many sensible investors are able to grow their wealth considerably by investing in the stock market. Some have basically compared it to gambling but if that is true, then what are sensible investors doing right? The answer is that they know the difference between a risky investment and a relatively safe investment. They have developed common sense around investing.
For instance, it is common knowledge that the index fund known as the Vanguard 500 is a relatively safe investments because their rate of growth matches the growth of the US market, which even after a couple of recessions has been growing for the past 30 years.
If you don’t know what you are doing, simply put your money in an index fund like the Vanguard 500. No investment is 100% safe but given that betting on the Vanguard 500 is like betting on the growth of the US economy, most would agree that this investment is relatively safe. In fact, 95% of investors can’t beat the Vanguard 500 which follows the US market!
If you want to learn more about the basics of investing, I highly recommend that you read How to Get Rich Gradually by Investing. Arguably investing in index funds is safer than real-estate. You don’t have to be an expert to make gains from the stock market, you just have to have common sense. I firmly believe that all Americans should invest in the stock market and grow their savings.
I saved 30% of my income
I saved 30% of my income by putting 15% into my 401k and 15% into ESPP (Employee Stock Purchasing).
It’s not as simple as not buying anything. Saving money is really more of a mindset and it takes discipline to get it right. The sooner you start, the more it will be in the long run. If I was able to save $300k in just 5 years, just think about how much that would be in 10, 15, or even 20 years. Suppose it was just a third of that amount, it still would be impressive.
There are a few things that you can do to make this a little easier. For starters, I recommend contributing the maximum amount allowable before you are taxed, to your 401k, aka, your retirement fund. The tax benefits alone would make it worth it and it is an easy way to save money without thinking about it. I recommend this especially if your employer offers 401k matching, which means they match up to a certain percent, what you put in, which translates to free money.
I also recommend that if your employer offers ESPP (Employee Stock Purchasing Plan), that you contribute to this one as well. My employer offers a 10% discount on stock which is again, more free money.
It’s all about having the right mindset and the discipline to put this plan into action. If you want to learn more, please read Rules for Saving Money.
I lived like I only made half my income
The other half of saving money is reducing monthly expenditures. Too many times have I seen middle income families with too much stuff and a whole lot of debt. I realized I didn’t really need a whole lot of expensive things to make me happy. And living a somewhat minimalist life is good for your piece of mind and also your wallet. For instance:
- My apartment was only $1250 per month (25% of my take home pay after deductions)
- I drove my old beater truck until I finally needed a new car
- I bought really cheap manufacturer refurbished electronics
- My entire living room only costed $650 including the TV after taxes and delivery
This was back in 2016 in the suburbs east of Seattle so that rent for a comparable apartment is near impossible to find today but my point is, you can live comfortably without spending a great amount. I cover this in more detail in Rules for Saving Money.