How to Build a $10,000 Savings Account

Writer and editor - Lauren Ward | Updated on 2023-02-19

A $10,000 buffer in your bank account is peace of mind. If the check engine light comes on while you’re driving, it’s no big deal. If your HVAC suddenly stops working in the dead of winter, you pick up the phone and call someone. It’s security. Security that can help you sleep at night and keep you focused on what’s important.

Of course, saving $10,000 is easier said than done, but that doesn’t mean it can’t be done. Indeed, it’s quite attainable as long as you’re realistic and patient.

Time Frame

What’s a realistic time frame to save a war chest of $10,000? It depends on your situation. With income discrepancies across the board, as well as numerous personal accountability or responsibility factors, the answer isn’t static. Anyone that puts a number on it is lying to you.

Oddly enough, countless bloggers say anyone can do it in a year as long as they ‘tighten their belts and stop buying coffee at the gas station,’ which is perhaps the worst insult you could ever throw at someone working 40+ hours a week and raising a family.

On the other hand, overly cautious and pragmatic experts argue many Americans need at least four years to get to the esteemed amount.

As with anything in life where there are two extremes, the answer is probably somewhere between the two (but please prove us wrong and do it in six months!).

How many of the below factors contribute to money leaving your bank account?

  • College debt
  • Credit card debt
  • Children/Daycare expenses
  • Groceries
  • Utility expenses
  • Gas/ Travel expenses
  • Insurance
  • Medical expenses
  • Mortgage/ Rent

Out of all of these expenses, your debt has the largest impact on your overall financial health, so it’s important to make a decision that best suits your needs.

Should You Pay Off Your Debt or Just Make Minimum Payments While Saving?

If you put all of your time and energy into paying off your debt, could you do it in six months? The average college debt is $30,000, whereas the average credit card debt is $16,000. Consider that the average income in the US is about $49,500, a combined $46,000 in debt is a big a mountain to climb just by omitting your gas station coffees.

Yes, if you pay off all of your debt first, it will be much easier to start saving. That’s easy enough logic to follow, but the other argument is if you don’t have a little money set aside for emergencies (because you’re throwing it all at your debt), what are you going to do when something happens? The whole Murphy’s Law argument.

To get to $10,000 in the bank, most Americans need to invest whatever they can at the end of each paycheck. Therefore, to answer the debt question intelligently, you have to do the math. Are you paying an extremely high interest rate on your debt? Consider paying it off first. Would your investment gains outpace your monthly interest payments? You might be better off saving while making your minimum debt payments.

Let Your Savings Grow

After you’ve reached a decision on your debts, the next step is to cut back on spending wherever you can and to constantly strive to earn more. While doing this, you need to steward the money that you already have. Take care of it and put it in places where it can grow and mature. What we mean by this is that you need to invest it.

You have a few options:

  1. High yield savings account: A savings account with compounding interest can help you attain your savings goal much more quickly than letting it sit in a low-yield savings account. There are lots of options out there where you can invest your money and see a return of 1.5%. The goal is to find one where your money grows month to month instead of year to year. This way your money’s not locked away and you can see its growth every 30 days.
  2. If you have a higher risk tolerance and don’t have an immediate need to access your cash, consider investing in stock index funds. They’re extremely easy to setup and you can even sign up for an automated monthly savings plan to stay on track with your goal. Over the last 50-60 years, the average rate of return has been around 7%, so knowing that may help you feel more comfortable with the risk. Of course, the big variable is when you want to withdraw the money, since that moment’s return is the one that really matters to you.

Let’s look at a couple of real-life examples to figure out how much you need to save over what period of time to reach your $10,000 goal.

Example 1: Low-Risk, Low-Returns
If you simply put your money into a high-yield savings account with a 2.5% interest rate, you can save $10,000 in just over four years. The monthly deposit amount you’ll need? $200.

Example 2: Higher Rate Accounts
With interest rates on the rise, savers may start to see better interest rates from financial institutions. Let’s say you find a 5-year CD offering a 5% APY. Over that five year period, you’d only need to contribute $150 per month to reach just under $10,000 by the end of the term.

Example 3: Strong-Performing Stock Index Fund
If you contributed the same amount each month for the same five-year period with a stock index funds that performs well, you could actually surpass your $10,000 goal. With that $150 monthly contribution with an average 10% return, you’d have nearly $11,000 in your account by the end of it.

Example 4: Below-Average Stock Index Fund
Let’s take a less-than-ideal scenario and look at a scenario when the market is performing poorly. At an annual rate of return of 1.5%, you’d need to invest $200 each month to reach $10,000 in about 4.5 years.

To diversify your savings portfolio, you can also mix and match your plans. Consider, for example, placing half your money in an FDIC-insured savings account, and the other half in an index fund.

When it comes down to saving $10,000 you need to make a plan and stick to it. Give yourself aggressive yet attainable goals and take advantage of compounding interest opportunities when you can. Most importantly, have a multi-angled approach. Do as much as you can month to month (save, invest, and earn more), so you can beat that conservative four year time frame by as much as you can.

Lauren Ward

Lauren Ward
Writer and editor

Specializing in original, well-researched web content, including blog posts, news articles and web copy. Areas of expertise include personal finance and lending. 10 years of experience as freelance writer and working at Federal Reserve Bank of Richmond.
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