10 Important Reasons to Build a Nest Egg

This article originally appeared on Partners in Fire and has been republished with permission.

It’s time to start building your nest egg if you haven’t started already. Having a nest egg to fall back on is important to your overall wellness and your financial security.

1. What Does Nest Egg Mean?
2. What Is a Good Nest Egg?
3. 10 Reasons to Build a Nest Egg
4. How Much Is the Average Retirement Nest Egg?
5. How Do I Start Building a Nest Egg?
6. How Should I Invest My Nest Egg?

What Does Nest Egg Mean?

A nest egg is a financial term for a large amount of money intended for a specific purpose. That money can be in cash, savings, or investments.

Traditionally, the term nest egg is used when discussing retirement planning. Here are other reasons why building a nest egg might come in handy.

What Is a Good Nest Egg?

Everyone wants a solid number to shoot for. A million dollars is the ideal nest egg! It would be easy if there were one set number that worked for everyone, but that’s not reality. A good nest egg isn’t a specific number. It’s the number that works for your individual situation.

Take a look at your financial goals. Do the math and determine how much money you really need, not just for those goals but also your retirement needs, your legacy, charity, and anything else. Also, keep in mind that if you are investing, your money will grow over time. Determine how much your money will grow by the time you need it. You may find out that you need far less than you initially thought.

Once you do all these things, you’ll have a good idea of your nest egg number.

10 Reasons to Build a Nest Egg

1. Retirement

Retirement is the number one reason for building a nest egg. Usually, it’s the only thing people talk about when discussing nest eggs. That’s because of how vitally important it is. Life comes at you faster than you would expect. You’ll reach retirement age before you know it.

Don’t you want to be able to enjoy your golden years? Start building your nest egg now, and you’ll be ready to sail off into the sunset of life without worrying about working. That should be reason enough to start building a nest egg. But if it’s not, the second reason should be sure to inspire you.

2. Forced Retirement

You never know what life will throw at you. You might be planning to work until you die. Unfortunately, in today’s society, that seems like the only option for many people. But, they don’t consider the fact that they might not die but still might be unable to work.

Nearly half of retirees say they retired early than they expected to. Many retire due to failing health -they are physically and mentally unable to continue doing the job. Others are laid off, outsourced, downsized, or otherwise let go from their positions and unable to find work elsewhere. A company can go out of business three years before you were planning to retire, leaving you high and dry.

The reality is that we can’t know what is going to happen. Our jobs may seem completely secure until a global pandemic hits or a juicy offer hits the CEO’s desk. Having a nest egg will help you prepare for any eventuality, even if you have no plans to retire.

How Much Is the Average Retirement Nest Egg?

Americans aren’t doing well when it comes to retirement savings. Although, on average, people in their 40s and beyond have a million dollars or more in their nest eggs, that doesn’t tell the whole story. Averages tend to be skewed because the very wealthy have so much more than everyone else.

To get a picture of where the average American stands, we need to look at the median, which tells a horrifyingly different story. According to a recent study by the Transamerican center for retirement, Americans in their 60s have a median retirement savings of less than two hundred thousand dollars. If that money needs to last for thirty years, these retirees are looking at less than twelve thousand dollars per year in retirement income. That’s just below the federal poverty level. And remember, this is the median. That means around 50% of all Americans in their 60s are worse off than that.

3. Family Care

Another reason people leave the workforce early is to take care of ailing family members. With hospice care and long-term care being so outrageously expensive, many opt to care for aging parents or spouses at home. However, they may need full-time, round-the-clock care, which often leads to someone having to quit their job.

Having a hefty nest egg can help with this decision. Knowing that your own retirement will be secure if you exit the workforce early (or take a break from working) to care for family members that need it can be the push you need to take that plunge.

4. Education

College is expensive. If you have kids, you might want to help them cover this difficult expense. If you don’t already have a retirement nest egg, you might want to rethink this. Although student loans can be suffocating, they are still available. There are no retirement loan options. 

However, if you have a large enough nest egg, you might want to consider helping your kids with the cost of college. You may even want to go back to school yourself!

5. Emergencies

Expect the unexpected. You never know when something might happen that will cost a bundle to fix. The AC might go out. A car might break down. Someone in the family might get sick or injured.

Many of these types of emergencies call for an emergency fund. An emergency fund can be part of your nest egg. Sure, it’s in a separate account, and you’ll only want to use it when you need it, but it still counts as an important part of a nest egg. An emergency fund is a large amount of money, saved in a separate account, earmarked for a specific purpose (even if you’re not entirely sure what the purpose will end up being), so it does meet the standard definition of nest egg anyway.

6. Options

Your job sucks, but you’re stuck. You need the money. Unless, you have a big enough nest egg. Having enough savings to quit a toxic work environment without a backup plan can be an important reason to build a nest egg.

Having fallback money gives you options. You can quit a job to work on your passions for a year. Or you can spend time searching for the right opportunity, rather than just taking whatever comes up first. These options can be invaluable to building the life that you want, and building a nest egg will help give them to you.

7. Large Purchases

Do you want to buy a new home? Or a car? Or make any other large purchase? A nest egg can help you with the down payment for these things (or even help you pay them in full if you want to avoid taking on more debt!).

Nest eggs aren’t just for retirement. You can start building your nest egg without really knowing what you want to use it for, and it might come in handy when it’s time to make one of these big purchases.

8. Security

One of the most important reasons for building a nest egg, in my opinion, is financial security. The truth is, you don’t know what is going to happen. You don’t know if the economy will crash, or if you’ll get laid off, or what the future holds.

Building a nest egg can help you mitigate any financial disaster. Having a bundle of money you can fall back on if something awful happens can be the difference between thriving and surviving. Set yourself up for success by making sure you’re going to be okay if you fail.

9. Legacy

Many people have a goal of giving their children a better life than they had. Building a nest egg can help with that. A nest egg can act as a legacy. Building it can also be a method of building generational wealth -whether you give your nest egg to your children in the form of inheritance when you pass or use it to help them get started with their own lives.

Building a nest egg for yourself is an important first step towards building generational wealth and securing your own legacy. To ensure that your money is going where you want it to go, make sure that you’ve discussed your estate plan with a lawyer.

10. Helping Others

A final great reason to build a nest egg is so that you can give back. Many people leave large portions of their estates to charity or create a scholarship fund with it. You can use any portion of it that you don’t need for yourself or your family to support causes you believe in.

This is an extremely admirable reason to build a nest egg. Some do it so they can bequeath a portion of their estate to a charity when they pass, and others do it so they can quit their high-paying job to volunteer for a cause they believe in. Some also choose to give a portion to charity every year to see the good that their gifts are doing.

It’s amazing to be able to make a difference in the world. Building a nest egg that’s larger than you actually need is a great way to give back.

How Do I Start Building a Nest Egg?

A Journey of a Thousand Miles Begins with a Single Step

A nest egg of a thousand dollars begins with a single dollar. It’s the same thing. Start small. Start with whatever you can afford to save, even if it’s just a dollar or two. Once you cut back, you can start budgeting extra money to help build your nest egg.

Another option is to increase your income, which you can do through trying to get another job or through side hustles. Although you can do your best to save money, the best way to get a lot more money is to increase your income, so if budgeting is a challenge, this might be your best route.

Now that you’ve got extra money, it’s time to put it to good use building your nest egg. Start with an emergency savings account so that you’re tempted to go into debt or withdraw from your investments should an emergency arise. Once you have at least a thousand dollars in your emergency fund, it’s time to start investing.

How Should I Invest My Nest Egg?

A lot of people shy away from investing because it seems overly complicated. Trust me – it’s not! Of course, there are many complicated investment vehicles out there, but don’t worry about those. Keep it simple.

Retirement Funds

Your first step should be to contribute to your employer-sponsored 401K plan if they offer one. This lets you contribute pre-tax dollars, which lowers your taxable income now (but you’ll have to pay taxes on withdrawals, so keep that in mind). Also, most companies offer a match, which is basically a guaranteed return. Where else will you get a dollar-for-dollar match on your investments?

If your company doesn’t offer a 401K plan, you should still be saving for retirement. You can fund your own IRA with pre-tax dollars or fund a Roth IRA with post-tax dollars. Be sure you understand the tax implications of each investment before deciding!

Non-Retirement Investment Strategies

Finally, you should start investing in non-retirement accounts. Saving money is great. You should definitely keep a small portion of your nest egg in savings for emergencies, especially so you avoid any early withdrawal penalties and things like that. But, interest rates on savings accounts are meager. You won’t even beat inflation if you keep all your money in savings.

To allow your money to grow, you need to invest it. If you aren’t interested in actively managing your investments, your best options are index funds and mutual funds. In my opinion, index funds are better because they have lower fees, but mutual funds are very similar. Vanguard’s total market index fund can get you instant diversification across the entire market. It allows you to invest in multiple sectors with just one fund. It also pays dividends, which is a key factor towards having your investment grow.

Start Growing Your Nest Egg Today!

Nest eggs aren’t just for retirement, though that’s an important aspect. Now that you can see how vital having a nest egg is, what are you waiting for? Start growing yours today.

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