How to Save a Million Dollars

Saving a million dollars for retirement is a great way to set yourselves up for success financially. This is how we're planning on saving a million dollars for retirement, and how we'll get ourselves there. 

This year Derek and I had a huge goal to get ourselves straight financially. We didn't have loads of credit card debt, and we both have excellent credit scores, but we just felt a huge desire to work towards retirement and long term goals, and needed to create a plan that would get us there. If you're wondering how to save a million dollars for retirement, here are four steps we're implementing in our own lives.

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Buying A Home As An Investment:

Since selling our last home over the summer, Derek and I have been constantly going back and forth on when we should think about buying again. I feel like there is a lot of pressure to buy because you see all your friends buying, and the market in Utah just keeps going up and up and up, but we ultimately decided that buying a home was not a long term priority to us and felt there were better things we could be doing with our money right now. 

Derek and I listened to this podcast: For The Love of Money: Should you rent or buy? And a lot of what he said really resonated with us. If we bought a home right now it would definitely be an FHA loan with only 3-5% downpayment. He outlines in that episode that purchasing a home under those circumstances actually yields to you losing money on your investment each year, and that the smarter thing to do with your money is to invest in a high yield savings account. He then goes on to say when you should buy a home, but Derek and I decided to just focus on the first step for right now. 

Update: Since writing this post Derek and I have purchased a new home. While it wasn't a major priority to us all the details just worked out really well in our favor. You can read all about this here. Our new plan is to never move again, hang onto this home for 30 years, and hopefully make some money off it in the future. 

Paying Off Debt with Debt Snowball:

Derek and I decided that the number one thing we can do right now is pay off all of our debt as fast as we can. When we discussed this in January we put all of our debt and income into this Debt Snowball Calculator, and it basically said we could pay off all of our debt in 18 months without using any of my blogging income, tax refunds, bonuses, and just using Derek's paychecks. 

Knowing that I would be making money, and Derek does get occasional bonuses at work, tax refunds, and other things like that, we knew we could pay off all our debt hopefully a lot sooner than the 18 months. This has become our number one focus since the start of the year. 

The only debt we actually have is my car payment and Derek's MBA student loans. Since January we have paid off $8,000 (combination of Christmas bonuses, tax refunds, and blogging money), on Derek's student loans, which has actually lowered our monthly payment, increasing the amount of money we have in our budget, and thereby increasing the amount of debt payments we can make each month. 

Cutting Down Expenses: 

One thing we're working really hard on right now is cutting down expenses to make our monthly bills as minimal as possible. I already mentioned that our student loan payment decreased when we paid a good portion of it off. This was because our $30k in loans were divided into four separate loans. We had $10k divided into three smaller loans and then $20k in one bigger loan. When we paid off all the smaller loans, it actually shaved $100 off of our monthly bill. 

Another thing we did to save on monthly expenses was switch our cell phone carrier to Mint Mobile. I did an entire post about them last week, but we're saving about $60 a month for our phone service by using them instead of another big carrier. 

One thing we're actively looking into right now is finding a new house to rent for the next year. Right now our rent is so insanely high, and we're living in a three story townhouse which as you can imagine is miserable when you have a five-year-old who cannot walk. 

We're hoping sometime between May-July to find a single-story home in our neighborhood to rent, that is hopefully cheaper than what we're paying now.

Investing in High Yield Savings Accounts:

Once Derek and I have all our debt paid off (hopefully by next summer fingers crossed!), we will start contributing money each month to a high yield savings account. This is in addition to money we're already contributing to Derek's 401k at work. We don't really have a plan yet as to who we will work with, and where we will invest our money, but the hope is to get something that matures at a rate of 5-10% each year (listen to podcast linked above for more on this), and we'll pay money into that account each month. 

The major long term goal is to have one million dollars saved for retirement when the time comes. Once we're done paying off debt, all the money we would have used for those monthly payments will just become invested into whatever accounts we decide to open. The hope is by the time we retire our accounts will grow at the same percentage rate that we're withdrawing so that it never truly depletes itself and is still earning money for us to live off of indefinitely.

All of this is coming from someone who isn't a financial expert, who probably said incorrect things, but we're learning and working through these things as we go.

Also while writing this we just upped our 401k contribution by 2%. 

These are our financial goals as of right now. Our major focus is getting rid of all the debt so that we can work towards the bigger picture. We'll keep you updated periodically on how all of this pans out over the coming months/years! 

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