Building your nest egg: A guide to securing your future

Sometimes, the concepts of “nest egg” and “emergency fund” are used interchangeably. But they serve totally different purposes. An emergency fund is short-term savings, usually 6-12 month’s worth, to help keep you afloat without going into debt if you have unexpected expenses or lose your job. 

A “nest egg” refers to money and other assets you’re earmarking for the future, typically for major events like college, buying a house, or retirement. Most people try not to touch their nest eggs until they have to. Oftentimes, growing your nest egg is one of the largest goals in a financial plan - or at least a significant part of one. The two most important things to know about a nest egg are how to start one and how to grow one.

How to start your nest egg

Starting your nest egg can be as simple as setting aside a bit of your paycheck every payday. Even small amounts can accumulate over time. But building a nest egg isn't a race; it's a marathon. It calls for discipline and consistency. Here's how to kickstart the process:

• Set S.M.A.R.T. financial goals.

• Save consistently.

• Invest wisely.

• Pay off debt.

• Monitor and measure your progress consistently.

• Adjust as you go!

These are just a few strategies to help you start building your nest egg. Remember, the most important thing is to start saving and stick with it. You've got this!

How to grow your nest egg

Once you master the art of saving money, your next step is to make that money work for you. Investing your nest egg can help you grow it even more. You can even involve your kids in the process with investment tools like the Greenlight app. 

Consider working with a financial advisor to find the best investment options for you based on your risk tolerance and goals. And remember, don't put all of your eggs in one basket - diversifying your investments is key to protecting your nest egg. They can guide you through even more investment options.

Frequently asked questions

Q: How much should I save for my nest egg?

A: This depends on your financial goals and circumstances.

Q: Can I have multiple nest eggs?

A: Absolutely! You can have different nest eggs for various financial goals. Just make sure your strategy is specific to the goal. 

Q: What's the difference between a nest egg and an emergency fund?

A: A nest egg is for long-term goals, while an emergency fund is for unforeseen expenses.

Q: How can I grow my nest egg faster?

A: Consider investing in stocks, bonds, or real estate, and always reinvest your returns. Harness the power of compound interest power of compound interest.

Q: Is a nest egg the same as a pension?

A: Not exactly. A pension is a type of retirement plan, while a nest egg is a broader term for any savings set aside for future use.

Q: Is it too late to start building a nest egg in my 40s?

A: It's never too late to start saving. But you might need to alter your strategy. While starting earlier provides more time for savings to grow, you can still build a considerable nest egg starting in your 40s or even later.

Q: How does inflation impact my nest egg?

A: Inflation can erode the purchasing power of your savings over time. That's why it's important to consider investments that can potentially outpace inflation. And take inflation into account when forecasting what you need to put away each year. 

Q: Can I lose my nest egg if the stock market crashes?

A: If all your savings are invested in the stock market, a crash can significantly affect your nest egg's value. That’s why many financial experts advise diversification and other risk-mitigation strategies. 

If you have debts, focus on paying off high-interest ones first while making minimum payments on others. Once those are paid off, redirect that extra money toward increasing your savings.

Q: Should I consider hiring a financial advisor to manage my nest egg?

A: If you feel overwhelmed by financial planning or if you have substantial assets, you might benefit from professional advice. However, remember that there are often fees involved. No matter who you choose to work with, always make sure they have strong, relevant education and experience and they’re reputable and trustworthy. 

Q: How do taxes affect my nest egg?

A: Taxes can take a bite out of your savings and investments. Understanding tax-efficient saving and investing strategies can help your nest egg grow more efficiently.

Q: Can I use my nest egg before retirement?

A: Dipping into your nest egg before retirement can come with financial penalties. It’s critical to educate yourself on any fees or other consequences of pulling funds out early. It’s a personal decision, but keep in mind that the primary purpose of a nest egg is to secure your financial future, particularly in retirement.

Q: How much risk should I take on with my nest egg investments?

A: The answer is personal and depends on your risk tolerance, financial goals, and time horizon. A balanced portfolio often includes a mix of high and low-risk investments.

Q: Can I reduce my tax burden with my nest egg?

A: There are certain strategies you can use to reduce your tax burden while building and managing your nest egg. These include utilizing tax-advantaged accounts such as IRAs and 401(k)s, maximizing deductions and credits, and being strategic about when and how you withdraw funds from your nest egg. It's important to consult with a financial advisor or tax professional to find the best approach for your specific situation. Additionally, staying informed about changes to tax laws can also help you make smart decisions to minimize your tax burden while saving for retirement.

Q: What if I don't have enough money to start a nest egg?

A: Now you’re a pro at starting nest eggs! Even if you’re just starting out, it’s never too late to start saving for your and your family’s future. Even putting aside a few dollars each week can add up over time. As your financial situation improves, you can gradually increase your savings. Use our time-tested tips and strategies to build a nest egg that will grow with you.