If you earn at least $45,000 a year, you could potentially save your first $100k in just 5 years. Here's how.

The first $100,000 is the hardest to save.

That’s a common mantra on wealth-building blogs and investor forums.

But what if I told you that saving your first $100,000 can be quite simple?

If you’re willing to make some sacrifices early on, you’ll have that kind of money (or more) in no time.

In this article, I’ll show you a step-by-step process for saving your first $100,000 in as little as five years (yeah, you heard that right!).

While it won’t be easy, it also doesn’t have to be complicated. Let me show you what I mean.

1. Adjust your mindset

How To Save Your First $100,000 (update) - Adjust your mindset

If you want to save $100,000, you’re going to have to think and act differently than most people around you.

Why is that? We overspend. We live beyond our means.

So, before doing anything else, adjust your mindset.

What I mean by “adjust your mindset”

Adjusting your mindset means sacrifice.

It doesn’t mean you can never drink a grande mocha again, but it means you can’t buy Starbucks twice a day, every day. It doesn’t mean you can’t own a car, but it means you probably can’t lease a new BMW every 30 months.

You have to live beneath your means.

If you are struggling to keep your spending in check, ask yourself why.

Are you hanging out with people who make more than you and can afford to spend more than you? Are you trying to keep up with a lifestyle you can’t afford? Or, do you simply not make enough money to cover all of your bills?

If you find it difficult to live within your means you will need to get this under control before you can aim to live beneath your means.

2. Establish your money goals

‘Would you tell me, please, which way I ought to go from here?’
‘That depends a good deal on where you want to get to’, said the Cat.
‘I don’t much care where’ said Alice.
‘Then it doesn’t matter which way you go, said the Cat’

Alice’s Adventures in Wonderland

Once you’ve decided you want to live a frugal life, the next step is to set up money goals. The point is to plan a vision of where you want to go.

There are plenty of ways you can get creative with this, but my favorite way is to visualize my goals. Many people do this with paying off debt, but it works just as well with savings goals.

For example, Map Your Progress creates images to color in as you reach milestones for your goals.

I’ve also used a vision board in the past as another way to establish my money goals and get them down on paper. If you are more analytical and love a good spreadsheet, then build out your money goals in an excel document.

Ultimately, you just want some sort of documentation that you can refer back to in order to track your progress.

3. Swear off credit card debt

How To Save Your First $100,000 (update) - Swear off credit card debt

Having debt is going to throw a wrench in your plan to save $100,000. Before you start saving your first $100,000, you need to get rid of your high-interest debt.

When you get rid of this debt, you can start working towards that big savings account.

In the meantime, try your best not to take on any additional debt. While it can be tempting to continue borrowing money, it isn’t going to get you any closer to your goal.

Related: Kick Debt’s Butt! How To Get Out Of Debt On Your Own

4. Create a budget

Before you know how much you can set aside, you’ll need to know where you’re spending your money. Then you can create a rough plan for how to reduce your spending and increase your saving.

Yes, we’re talking about the dreaded budget. But there are ways to make budgeting easier.

Related: How To Budget: 4 Easy Steps To Get You Started

You could also use one of the many free or low-cost tools that will track your spending for you.

These resources have different pros and cons, so do some research before committing to one.

You Need A Budget (YNAB), for instance, requires more manual tracking, but it provides you much more detail on your spending. It all depends on how much time you want to invest in budgeting.

Where to start budgeting

A good place to start with budgeting is to knock off between 20% and 30% of what you typically spend, then set that as your budget amount.

For example: let’s say you find that you spend $400 per month on groceries. You’ll want to shave 20% to 30% off of that amount to use as your grocery budget, like so:

$400 – (400 x 0.20) = $320

So, you would start with a grocery budget of $320 and see how you do. Look at your budget categories each month and try to cut them even further.

Examples of other areas where you may be able to cut your costs to save more money include:

  • Eliminate subscriptions. Take inventory of your subscription services and cancel any that you don’t use or need. This can include streaming services, memberships, and subscription box services.
  • Eat at home. Cook your meals at home instead of eating out or grabbing take-out. This includes making your own lunches and coffee for work.
  • Entertain at home. Instead of going out to a bar, invite people over to your place and tell them to BYOB.
  • Do it yourself. Instead of going for a blow-out, getting your nails done, or taking your car to a car wash, do it yourself to save more money.
  • Take public transit. Save on gas by taking public transit or walking to your destination.
  • Downsize. If your rent or mortgage payment is consuming a large portion of your income, consider moving to a smaller place. You can do the same with your car. If you’re a two-car family, ask yourself if you can get by with one car or find something that is more economical.
  • Do free things. Look for inexpensive or free ways to entertain yourself. Want to go to a concert? See if you can volunteer to gain free admission. Want to check out a museum? Look online to see if they offer free admission on certain days.

5. Save, save, save

How To Save Your First $100,000 (update) - Save, save, save

By now you’ve figured out the first steps, and you’ve created a budget. Now it’s time to start saving that $100,000!

To do this (especially in five years), you’ll have to be aggressive with your saving. Remember when I said, “adjust your mindset”? Well, this is it.

401(k)

For starters, look into your company’s 401(k) plan. If they have one, sign up now. You can contribute up to $18,500 per year.

Figure out whatever percentage of your check you need to take out to add up to $18,500 by the end of the year. Then take that percentage out of every paycheck.

For example: let’s say you make $40,000 per year:

$18,500 / $40,000 = 46%

So, you’ll need to sock away 46% of your gross income to reach this milestone.

This doesn’t take into consideration company matches, so you might not have to contribute that much to hit $18,500 in total contributions.

But be sure you don’t go over $18,0500 in personal contributions, though, or you may get hit with penalties. (Your total contribution maximum – of your and your employer’s contributions – is either $55,000 or 100% of your salary, whichever’s less.)

And yes, 46% does sound like a lot. Maybe you can’t do that right away. But if everyone was doing it, more than half of Americans would have more than $0.00 in their retirement savings.

How will you separate yourself from the pack?

Roth IRA

After you’ve maxed out your 401(k), you’ll want to set up a Roth IRA. Roth IRAs have a ton of benefits, too.

In 2020, and 2021, the maximum contribution for a Roth IRA is $6,000 per year for those under 50 and $7,000 for those 50 and older.

Also, this is after-tax money, so you’ll have to include that in your budget.

Setting up a Roth IRA is easy

To set up a Roth IRA, you can use a robo-advisor such as Wealthfront. If you want to make things as simple as possible, you can choose from one of their existing investment portfolios, or you can create your own from scratch.

When creating your own portfolio you can add the investments that you feel most passionate about including socially responsible investments (SRI), technology ETFs, and healthcare ETFs. 

How does this add up to $100,000?

Using MU30’s simple long-term investment calculator, you can see that by maxing out both of these accounts  ($23,500 a year or $1,958 a month) at an average 5% return, you’ll have well over $100,000 in five years.

6. Keep saving (even if it isn’t as much as you planned)

At this point, you might be thinking it’s not realistic to be able to save close to $24,000 per year. And it might not be for you. But that shouldn’t stop you from trying.

If you can’t afford to put away that much money in savings, start somewhere. Put away as much as you can afford. It might take you longer to reach your goal, but it’s better to have some savings than no savings.

And if you’re looking for suggestions, find the best savings rates in your area below:

Don’t forget to think outside the box

I will still challenge you to think outside of the box, though. Remember, in order to save more money, you may need to think differently than others.

Just do a Google search for “early retirement,” and you’ll find hundreds, if not thousands, of bloggers sharing their stories of how they’ve saved 50% or more of their income.

It is possible, you just have to want it and be willing to sacrifice other things.

7. Make more money

How To Save Your First $100,000 (update) - Make more money

If you don’t have a large salary but want to expedite your savings, start to look for ways to make more money.

There are two sides to the coin when it comes to saving.

  • One side is about budgeting and cutting costs, it’s about sacrificing in the short term to achieve your long-term goal.
  • The other side focuses on making more money. If you bring in more cash each month, then you can save more money and reach your goal of saving $100,000 faster.

There are many ways you bring in additional income including: 

  • Ask for a raise. If you’ve been at your job for a while and you’re performing well, then consider asking for a raise. This can be anxiety-inducing, but if you can muster up the courage to ask, it can be a quick way to make more money without having to find another job.   
  • Start a side hustle. If you don’t already have a side hustle, you might want to get one. A side hustle is a great way to generate additional income in your free time. Sometimes the hardest part of starting a is coming up with a good idea. 
  • Sell your stuff. If you have more things than you have money, consider selling your stuff. Use sites like Etsy, eBay, and Craigslist to sell off some of the things that you don’t use or need in order to put more cash in your pocket. 

Of course, once you start making more money be sure to funnel it into your savings. Without a strict plan for your new money, it can be easy to get caught in lifestyle creep. This is when you gradually begin to spend more money as your income increases.

8. Make sure that your emergency fund is well-funded

To prevent an unexpected expense or an emergency situation from completely derailing your $100,000 savings goals, it’s important that you have an emergency fund.

I know it seems counterintuitive to put savings into an emergency fund when you are trying to reach your other money goal, but trust me, it’s worth it.

An emergency fund is money that is put to the side to cover your essential expenses (rent, food, utilities) should you need it. 

For example: Let’s say you lose your job and have no emergency fund to fall back on. If you can’t find a job fast enough, you might be forced to dip into your retirement savings and investments in order to make ends meet.

With an adequate emergency fund, you won’t need to use your retirement savings to survive, and as soon as you find another job, you can continue on with your $100,000 goal. 

9. Don’t worry about balances fluctuating (or even tanking)

How To Save Your First $100,000 (update) - Don't worry about balances fluctuating (or even tanking)

The balances in your account will fluctuate over time. They may even tank when the stock market dips.

The thing that you need to remember is that this is normal. You’re going to see ebbs and flows in the market – that’s just how it goes.

This shouldn’t stop you from being aggressive with your savings goals. It also shouldn’t stop you from putting your money into the stock market altogether.

To see returns on your money, you’ll have to take on some risk. And if you start early when you’re young, you’ll have some time before you retire. This will allow you to take on more risk.

Summary

While saving $100,000 seems daunting, it’s not difficult if you put your mind (and your money) to it. If you’re interested in getting started, look into some of the investment accounts we recommend opening an account with.

Remember, you have the ability to save tremendous amounts of money and retire early. You just have to want it and be willing to do what it takes to get there.

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About the author

Chris Muller picture
Total Articles: 198
Chris has an MBA with a focus in advanced investments and has been writing about all things personal finance since 2015. He’s also built and run a digital marketing agency, focusing on content marketing, copywriting, and SEO, since 2016. You can connect with Chris on Twitter.