How Much Should You Set Aside?

It is not my job to make you a better saver. Only you can do that. I have read many books on budgets, economizing, and the like. In summary, they all state the same concept. Spend less than you make! Watch the dimes and the dollars will take care of themselves. I feel all this is true but just as important, you must live within your means. Don’t buy things you don’t really need!
Do you really need a new car every 2-3 years? Do you really need cable television with all the premium channels? I feel you must put first things first. Establish a systematic savings and accumulation program that directs dollars into a suitable program on a weekly, bi-monthly, or monthly basis. Pick a number and do it! Put your savings program on cruise control. This is the best advice possible for achieving real and consistent wealth.

The following graph demonstrates how much in funds you need to set aside to have one million dollars. The longer time period you have, the less you will need to set aside. However, it is crucial that you set aside something and establish the savings habit. Constantly look for ways to put your savings program on cruise control. Payroll deduction is ideal for this, such as profit sharing plans in the workplace, known as 401k plans. These are perfect accumulation vehicles. Those in the public sector often have equivalent programs and non-profits use 403b plans. Seek these programs out. Also, ask if deferred compensation programs are available. Even the simple savings bond program goes a long way to propelling you on your goal. You first need to establish this accumulation habit to have funds.

Once you have built up sufficient funds, you can then seek out better performing investments. An accumulation program that works really well for many investors is to have money automatically withdrawn from their checking account every month and deposited into an investment account such as a well performing mutual funds, variable annuity, or brokerage account.

When investing into a mutual fund, make sure that the managers that built the track record are still managing the fund today. If they leave, retire, or start underperforming for more than two years, seek out another experienced mutual fund quickly.

When looking for good performing funds, do not hesitate to call the mutual fund companies. Ask them which of their funds in the best performing. When first starting out, avoid sector funds that invest into only one area of the market, as they are too volatile.

An index fund is a good place to start. Index funds remain the lowest-cost, lowest-maintenance form of investing for an individual. An S&P 500 index fund is one of the easiest ways to get started investing. It is based on the actual S&P 500 index, which has risen an average of 10% over the last 75 years. Most mutual fund companies have a fund that is based on the S&P 500.