How To Stay Motivated Before the Tipping Point

The tipping point is the mythical spot where your investments start to return more than the amount of money you are adding on a regular basis.  For people in the early stages of wealth development, usually 20 somethings, it can be difficult to stay motivated, because the interest and gains from your savings is very small compared to what you are putting in, which can leave you wondering, “will I ever get there?”

Look at Account Balance Increase, Not Market Return:

Your savings now moves the needle the most: A major silver lining with starting out saving for retirement is that everything you put in has a large percentage addition to the account. For 2013, what we saved in retirement, without even looking at gains, doubled our accounts. In 2014, they will most likely double again.  Savings is relative. A guy adding $10,000 to his $1,000,000 account only moves the needle by 1%.  A guy adding $5,000 to his $5,000 account moves it 100%.  Looking at these numbers instead of the investment returns keeps me motivated while putting large sums of money into our retirement accounts, instead of spending on the here and now. I know that today they aren’t producing a decent income, but with 30 – 40 years of further accumulation and appreciation, they will. I like to take a glance at the totals on a quarterly basis just to keep a handle on where they are.

Use a Retirement Calculator To Estimate Your Future Nest Egg:

I built this retirement calculator to track our nest egg which is growing across 7 accounts.  Seeing what your $100 a month, $200, a month, $500 a month does when compounded over the long term helps to re-iterate the importance of saving money now.  Of all the things I do to stay motivated and keep pushing to save more for the future, using this retirement planner projection is the most useful.

The Tipping Point Is Mythical:

Guess what? You may never reach a special tipping point. This is because as time goes on and you potentially increase your earnings AND increase your savings percentage, you are putting more and more into retirement accounts.  If you started out putting $100 a month into retirement savings, the tipping point at that point in time with 8% returns would be about $15,000 in the account, after 8 years of saving. But 8 years down the road with raises and increased savings rates, you are now putting in $500 a month, which would require a nest egg of $75,000 to hit the tipping point.  Fast forward a few years when a 75,000 balance is hit and now you’re a rockstar contributing $1,500 a month into accounts,  the new tipping point is $225,000.

A lot of changes happen over time. 10 years ago I wouldn’t have imagined being able to save the amounts we are saving today. It looks like for 2014 we will save more money than I earned in 2005. I don’t expect our income over the next 10 years to grow by as large of a percentage as it has in the last 10 years, but our delta, the amount we can save between our earnings and expenses may increase substantially, so long as we don’t allow any lifestyle inflation.

Automate Contributions:

Automating contributions is another great way to stay motivated. If I had to make a conscious decision every single week whether or not to contribute I’m sure I would skip some weeks, either intentionally, or just out of forgetfulness. By automating the process I don’t feel the money leaving my wallet as much as I think I would otherwise.

What did you do to stay motivated during the early formative years of building a nest egg?