Retirement can seem like a distant dream when you’re just starting out in the workforce. So, it’s understandable that you might be more focused on other, more immediate goals like getting a new place, building up your emergency fund, or traveling.

But if you make saving a priority early on, it can really pay off down the line and help you live your best life in retirement and even retire earlier than you thought.

Importance of having a nest egg

Retirement is a big motivator for people to start saving for a nest egg, especially as we’re living longer and need more money to fund our post-work needs.

But it’s not just retirement that people save for. Many folks also want to save up for future family care or their kids’ education, which both require a big chunk of money that takes time to save.

Not having a nest egg can lead to some pretty negative consequences down the line. For one, you might not get as much support from the government when it comes to pensions. And if something unexpected happens, like getting sick or losing your job, you might not have the means to keep up the lifestyle you want.

Plus, if you don’t have a nest egg, it’s less likely that you’ll be able to leave anything behind for your children or help out other family members.

Tips and tricks for building a robust nest egg

1. Start as early as possible

The best tip any financial advisor can give you when building a nest egg is to start right now if you haven’t already.

When you start saving for retirement early, you get to enjoy the magic of compound interest. The earlier you start investing, the more your money grows on its own, with interest piling up over time. Even if there’s no set rate of return, you’ll end up with a bigger nest egg with less investment if you start early.

For example, Robert and James want to retire with $1 million. Robert starts saving at age 25 and contributes $300 per month, while James starts saving at age 35 and contributes $500 per month.

Assuming a 7% annual return on investment, by the time Robert reaches age 65, he would have $1.3 million, while James would have only $950,000.

That’s because Robert’s savings had more time to grow and compound, resulting in more overall growth than James’s savings, despite contributing less each month.

2. Make your savings automatic

People often have ambitious goals when saving money but fail to deposit as much as they want in their savings accounts. Many folks delay saving each month and, by the end, have little to no funds to save.

You can set up an automated transfer to ensure this doesn’t happen with you when trying to save for retirement. On a fixed day each month, funds from your bank account will be transferred to your preferred retirement savings account.

This way, you won’t miss a payment because to do so, you’d have to stop the automatic transfer before it happens manually. This extra effort and time will also help you consider whether the reason for missing one retirement contribution is worthwhile.

Automating retirement savings is easy for those with access to an employer-sponsored 401(k). You simply have to sign up for it, and your contributions will automatically be deducted from your paycheck.

Almost all banks offer automatic transfer options even if you don’t have access to a 401(k). Make sure you stick to a monthly budget (more on that in the following tip) so that after automating your retirement savings, you can still live comfortably.

3. Create a monthly budget

A budget can positively impact your ability to save for retirement and fulfill other financial goals simultaneously. It can give you a clear understanding of your income and expenses. Knowing where your money is going each month allows you to control your spending better and take control of your finances.

A proper budget can help you cut down on unnecessary expenses and prioritize your financial goals, which may include saving more for retirement, building an emergency fund, or paying off your debts.

It starts with first tracking all your monthly expenses, which will help you identify areas where you can cut expenses and help avoid overspending. These expenses may include expensive coffee, dining out, or subscription services you rarely use.

By drawing a line between your “needs” and “wants,” you can eliminate a few luxuries to make more room in your budget for important things. Utility bills, insurance payments, phone payments, etc., are fixed expenses, and your savings should be treated similarly.

You can be very consistent with your retirement savings if you make it a top priority in your budget. But to do so, you need to have a budget in the first place, so don’t wait and get started on creating one now. You’ll see a major financial upgrade in no time.

4. Work towards paying off your debts

If you’ve taken on more debt than you can handle over the years, a big chunk of your budget will go toward paying it off. Paying off this debt can help you free up money in your budget to put toward retirement savings and other financial goals.

Having a lot of debt can hurt your credit score and lead to higher interest rates on future loans. Paying off debt and lowering your overall debt levels can help you improve your credit score and possibly qualify for lower interest rates on future loans, allowing you to save more money in the long run.

If you think you have too much debt, make a plan to pay it off. Depending on your financial situation, there are multiple ways to deal with debt. For example, if you have high amounts of credit card debt, you can go for credit card consolidation, where all your debt will be combined into a single manageable payment.

If you have debts that you are struggling/failing to make payments on, you can also look into settling those debts. The process involves negotiating with a creditor to pay off a portion of your debt to be forgiven completely. You can either do it by yourself or hire a debt settlement company.

5. Expect you’ll need more than you think

When saving for retirement, you should expect to need more money than you think because various factors can influence how much money you will require in retirement.

Inflation, which can erode the purchasing power of your savings over time; unexpected expenses such as health care costs; and longer life expectancy, which means you may need to support yourself financially for a longer period, are some of these factors.

Furthermore, many people underestimate their desired retirement lifestyle and, as a result, may require more funds. Preparing for the worst and hoping for the best is always better.

The Bottom Line

A “nest egg” is a fancy way of saying a big pile of money you’ve saved for a certain reason. It could be in cash, in a savings account, or invested in the stock market. No magic number works for everyone, it’s all about what makes sense for you and your life.

To figure out what’s best for you, think about what you want to use the money for — retirement, leaving a legacy, giving to charity, etc. Do the math to see how much you’ll need. Just keep in mind that if you put your money in investments, it’ll grow over time!