How to Make a Million Dollars in Ten Years, Part 3: Savings

Here's part 3 in our quest to grow our net worth by a million dollars in ten years as guided by Smart Money. Today, we're focusing on savings, which Smart Money says will net us $535,000 in net worth over ten years. Their key thoughts:

Any savings strategy should start with a 401(k), the most powerful retirement weapon at your disposal. You don't have to pay income tax on the money you invest until you withdraw it, which amounts to a 20 to 40% bonus on your savings, depending on your tax bracket. Plus, most employers sweeten the deal by matching your contribution dollar with 50 cents, up to a total of 6% on average.

What about that $13,000-a-year slush fund you've amassed by taking care of your health and implementing smart spending strategies? Reality dictates that you'll blow half that on unforeseen emergencies or, with better luck, a couple of weeks in Hawaii. However, 25% of it, or $3,250, should go to saving for college. Consider a 529 plan, so named for its place in the tax code.

Our couple is stashing the remainder of their slush money in their brokerage account, which has an existing balance of $80,000. You should do the same. The brokerage account allows for a greater choice of investment options than your 401(k) or 529 plans. In all three cases, exercise some preemptive discipline by signing up for automatic withdrawals that divert money to your accounts each month.

Yes, it's amazing how you can really rack up some significant amounts of money in just a few, simple steps. I wrote about this in Free Money Finance Guide to Getting Rich.

I've posted a ton on retirement savings and saving for college, so instead of reinventing the wheel, I thought I'd list a few of my recent posts on each of these topics. Here they are:

Retirement Savings

• An Easier Way to Fund Your Retirement

• Three Big Mistakes in Retirement Planning

• A Simple Guide to Retiring Early

Saving for College

• Make the Most of a College Education -- It's Well Worth the Investment

• Why Education is So Important to Your Financial Future -- And How You Can Pay for College

• 4 Ways to Save Big on College Costs

In summary, after three days we're at $669,000 in our quest for $1 million in added net worth in ten years.

For reference, here's the link to part 1, Staying/Becoming Healthy Helps You Spend Less and Earn More and part 2, Saving Money

Click here to read part 4 of this series.

Comments

[some body]

commenting for the book ...

[Wes]

Pretty straight-forward. I have been maxing out my 401k since i started my job about 3 years ago recieving a 50% match up to the first 6%. I have some 25-30k now with an average of about 10% return per year.