Cut back on unnecessary expenses
There are ways you can probably contribute to a wealth snowball that you don’t realize, according to Roth.
One of the biggest expenses most people can cut back on, he says, are subscriptions and recurring monthly expenses.
“Nowadays, it’s a big thing to try to get consumers to sign up for subscription services,” Roth says. “Everything from Netflix to even Microsoft Office is subscription based.”
Individually, these subscriptions may seem small, but can add up. And getting rid of at least one can give you extra money to contribute to your wealth snowball.
“What I encourage people to do is to keep a close eye on the recurring monthly expenses because they act as an anchor dragging you down so that you’re not able to increase that gap between your earnings and your spending,” Roth says.
You don’t need to be rich
How much you can contribute to your wealth snowball depends on how much you can afford. If you don’t make a lot, Roth says, it doesn’t mean you can’t save.
“If you’re struggling to get by because your income is low, then it’s going to be tough for you to save say $100 or $250 or $500 a month,” says Roth. “If that’s the case, just make it a target to save $10 or $25 or $50 a month. Every little bit helps.”
And if you can afford to, says Roth, you should contribute as much as you can to a retirement account. For some people, that means contributing 5 percent of their income to a retirement account. For others, it means contributing as much as 50 percent.
“The more aggressive you get,” he says, “the sooner you can retire.”
The most important thing, according to Roth, is that you make an effort to save.
“Whatever you want to accomplish is going to come from that gap between your earning and your spending,” Roth says.
How to build a “wealth snowball”
Step 1: Let’s say you just paid off a credit car bill, bringing your total minimum balances on all your debt from $1,000 to $800. Instead of paying the minimum, continue paying $1,000 until your debts are all fully paid. That includes using any raises, bonuses or windfalls to pay off those debts.
Step 2: Once you’re out of debt, build a “wealth snowball”: Now that your debt is repaid, begin contributing the same $1,000 a month to an investment account where it will build interest over time. The more you contribute, the bigger your wealth snowball will grow.
Step 3: To contribute as much as you can to your wealth snowball, cut back on as many unnecessary recurring expenses as possible.
Remember: You don’t need to be rich: Contribute as much money as you afford, whether it’s $200 or $10 a month. Every bit will help.
GET MORE SAVING AND SPENDING HACKS
- How to budget (and get out of debt) if you live paycheck-to-paycheck
- How to create an emergency fund in just 90 days
- Need to save money fast? Try a spending ban