It’s no secret that Americans need to save more. The issue — at least in part — is that saving requires sacrificing some of today’s wants in favor of tomorrow’s needs.
A recent analysis by NerdWallet shows an alternative approach: Saving future income. According to the research, a 25-year-old earning $45,000 could accumulate nearly $1 million by investing modest raises and bonuses over the course of her career.
That’s either a retirement nest egg or a very healthy start to one, depending on your lifestyle.
Avoid lifestyle creep
When you start making more money, you’re likely to start spending more, using the extra income to eat out twice a week instead of once, for example, or to trade up to a new car.
After a while, it’s hard to remember a time when you drove a clunker or cooked for yourself on a Saturday night. As each raise continues to build on the next, you become accustomed to an increasingly higher standard of living.
In a 2015 SunTrust survey of households earning $75,000 or more, close to half reported lifestyle spending as the culprit of their savings shortfalls.
“No one ever has enough,” says Daniel Sheehan, a financial planner in Fresno, California. “When people get a raise or bonus, they look at that as an opportunity to do whatever they weren’t able to do before.”
Split the difference
Inflation — tempered as it has been — is a very real thing, as is the need to treat yourself. But a raise is also the easiest way to hit savings goals. The NerdWallet analysis struck a compromise, using just half of every raise but all of each annual bonus. The $1 million outcome is based on 3% annual raises, 5% annual bonuses and a 7.5% investment return.
Someone who doesn’t earn bonuses but still saves half of each year’s raise would still accumulate over $223,000 by age 65; undeniably a worthwhile boost to any retirement fund.
The analysis found that college savings goals can be achieved by parents in much the same way: A 35-year-old who earns $55,000 and saves half of his raises and all of his bonuses over 18 years would end up with $147,337, even accounting for a more risk-averse return of 6.5%.
Hit short-term goals, too
For short-term goals, you want to get further, faster. To do that, you can give your savings a much bigger boost by continuing to put away what you were saving during the past year, and increasing that by this year’s raise.
Using that method and adding in bonuses, someone with a $45,000 salary could build over $22,000 in five years, even at the 1% interest rate paid by an online savings account. That’s a healthy emergency fund for many people, or several steps toward a home downpayment.
Give yourself a raise
If the idea of a raise feels like a foreign concept, it might be time to ask for one. But if your boss says no, you can use other windfalls the same way.
This time of year, that might mean saving a tax refund, says Linda Jacob, a financial planner in Johnston, Iowa. “I’m always telling my clients to make a plan for that money before it actually hits your account.” Then, she adds, change your withholding so the money lands in your paycheck over the next year, functioning just like a raise. If your goal is saving for retirement, you can use it to boost your 401(k) contribution, or set up automatic transfers to an IRA.
Changes to your monthly expenses can be treated the same way: When you pay off a debt, like a car or student loan, put the money you were using to pay the loan each month toward your savings goals rather than absorbing it into your discretionary spending.
All of these suggestions provide a way to save without cutting expenses. But here’s the thing about saving money: After a while, as the balance starts to grow, adding to it can be a little addicting. You might find yourself wanting to save more. At that point, cutting back here or there may no longer feel like such a hardship.
This article was written by NerdWallet and was originally published by USA Today.