6 Fastest Ways To Save Up $500K, According to Experts
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Casey Bond
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Susan Kim
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Are you looking to supercharge your wealth building efforts? Reaching for the half-million mark is a great milestone to aim for.
Saving $500,000 might sound like an ambitious target, but with the right strategies, it’s achievable faster than you might think, according to Andrew Latham, a CFP and managing editor at Supermoney.
For example, he explained, you could potentially save $100,000 annually for five years straight, achieving the half-million mark in just half a decade.
“Start with a base savings of $30,000 from your primary income, add another $40,000 from smart investments, $15,000 from a lucrative side hustle, $10,000 from salary hikes or bonuses, and $5,000 from reducing unnecessary expenses,” Latham said. “Each of these moves, when combined, could bring you closer to your goal year by year.”
Not sure how to make that happen? Here are six ways to save up $500,000 quickly.
Automate Your Savings
“One of the biggest behavioral biases that humans succumb to is the bias toward immediate gratification over delayed gratification,” said Robert R. Johnson, a professor of finance with the Heider College of Business at Creighton University.
“It is exceedingly difficult for many people to imagine their future self and give up that vacation or new car today in lieu of having money to retire on in the distant future.”
That’s why it’s helpful to automate as many financial decisions as possible. Once you’re enrolled in an automatic savings plan, you’ll likely stay enrolled. And you won’t have to deal with the psychological pain of moving money from your checking account to your savings account, making it less likely that you’ll skip contributions.
Focus on the Big Stuff
“Many finance ‘gurus’ beat people up for their wasteful coffee or dining habits, but realistically, that is not going to make or break your long-term plans,” said Kendall Meade, a CFP at SoFi. What will? Major living expenses such as transportation and housing.
“If your car payment and rent or mortgage are too high, you will not have the available funds to save or invest for the long term,” Meade explained. “I recommend trying to keep your total debt payments around 36% to give you room in your budget for savings and investments.”
This, she said, includes car payments, housing, student loans, and any other debt payments such as credit cards. “Obviously, you do not want to completely overdo the small expenses like coffee or going out to eat, but it is important to keep things in perspective,” Meade added.
Don’t Just Save — Invest
Putting money away in a savings account is a great way to store cash for short-term savings goals. However, if you want to significantly grow your wealth, you need to invest your money.
“Counterintuitively, the biggest mistake many people make in investing is not taking enough risk,” Johnson said. “Many people are overly conservative with their asset allocation, particularly in their retirement accounts.”
However, he explained, the surest way to build true long-term wealth for retirement is to invest in the stock market. Since 1926, the average annual return on a large capitalization stock index (think S&P 500) has been 10.1%, according to data compiled by Duff & Phelps.
“If these historical average returns hold in the future, an investor will double their money in slightly over seven years and have 10 times their original investment in 23 years,” Johnson noted.
Take Advantage of Company Matches
If you have access to an employer-sponsored retirement savings account like a 401(k), and your company matches contributions, be sure to contribute at least enough to get the full amount. That’s free money that can make a huge difference is how quickly you reach $50,000 in savings.
“Roughly a quarter of employees leave money on the table by not taking advantage of their match,” Meade said. Don’t be one of them.
Just Say No to Lifestyle Inflation
The most common mistake people make is letting their spending increase commensurate with their new salary, according to Johnson.
“For instance, people move into a bigger apartment or buy a more expensive car or home to reward themselves for receiving the raise,” he explained. “What happens is they are unable to improve their financial condition because they spend everything they make.”
A good strategy to avoid this situation is to act as if you didn’t receive a raise and continue to live the same lifestyle, then invest the money instead.
Start ASAP
It can be tempting to delay your savings until you make more money. But by beginning as soon as possible, you’re not only able to contribute more to your retirement savings — you’re also able to grow your savings much faster through the power of compounding, according to Meade.
“Small delays in saving can have a huge impact on your outcome,” she said.
For example, assuming a 7% return and a starting salary of $75,000 with a 2% increase per year, below are the balances you could have in your retirement account at 50 by contributing 15% beginning at various ages:
- Start at 30: $485,936
- Start at 25: $779,384
- Start at 22: $1,014,071
It’s never too late to start saving. However, there’s rarely a good reason to wait.
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