Nest Egg Definition

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on March 29, 2023

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A nest egg is the money set aside for an emergency, or to be saved and invested with the goal of gaining financial freedom.

The nest egg should be built up gradually, and never touched until it's needed to provide for you or your family.

This can help anyone save for future expenses such as college tuition, medical bills, home renovation projects, emergencies, retirement and more.

The most important thing to remember about your nest egg is that it should not be touched until after an emergency, or until you are ready to begin investing/putting it towards your retirement savings.

How Do I Create a Nest Egg?

It may seem simple but the only way to create a nest egg is to save your money, instead of spending it on non-essentials or luxury items.

If you find yourself living paycheck to paycheck, or struggling with even the most basic bills because you are unable to set aside savings that will last through an emergency then it may be time for you to reevaluate your spending, and find a way to save money.

To create a nest egg you must first make a budget and stick to it every month, no matter what emergency or unforeseen expenses come up.

You should also take time to set up an emergency fund, so that you have the money you need to pay for any unexpected events or emergencies that may come up in your life.

If this proves difficult, try looking at your current expenses and seeing what can be cut from those expenses, so you can put them towards your nest egg.

Alternatively, you can put any amount of money towards your nest egg each month.

It will add up over time and help get you to that magic number where you have enough money saved to survive an emergency without putting yourself in debt or depleting your nest egg.

What Should I Do With My Nest Egg Once It’s Created?

Now that your nest egg has been created, you can begin putting it towards retirement savings, or investing it.

Retirement savings should receive first priority, as it can be one of the most difficult things to save for later in life.

Once your nest egg has reached a certain level, you may even want to consider hiring a financial advisor who can help you set up a plan that works best for your nest egg and your retirement savings.

How Long Will It Take Me to Build a Nest Egg?

The length of time for your nest egg could vary greatly depending on the amount you invest each month and how well you watch over your nest egg, but in general it should take between 4-6 years for a healthy nest egg to be created if you are able to put away any amount of money each month.

If you are unable to put aside much in the way of cash, it could take several years longer and even then your nest egg may not be substantial enough to last through an emergency.

Is My Nest Egg Safe?

Your nest egg is definitely safe, as long as you do not touch it unless you are in a dire emergency situation.

It is imperative that you do not touch your nest egg until needed, which could be a few days or several years into the future.

Your nest egg is essentially an emergency fund, and if you begin dipping into it for non-essential purchases or because of poor financial habits then it will not last through emergencies that may arise.

Make sure that once your nest egg is created, you keep track of all your expenditures and make sure that you are not depleting your nest egg for any reason other than an emergency.

If you feel like you need to touch your nest egg, because it seems like there is no way to survive the month without using it then it may be time for you to cut back on expenses or look into getting a part-time job so you can replenish your nest egg.

What Are the Benefits of Having a Nest Egg?

There are many benefits to building an emergency fund with your nest egg, including being able to avoid debt and living paycheck to paycheck, but here are some of the most important ones:

  • Your nest egg is kept safe in case of emergencies.
  • You will not have to resort to credit cards or borrow money from family members for unexpected car repairs or medical bills.
  • Your nest egg begins to work for you as soon as you begin investing. If you end up needing a little extra money and your nest egg has grown, you can always withdraw from it without penalty.
  • You will not be charged interest on the amount of money you take out, but if it is not for an emergency, you will be charged a fee.
  • Finally, it will help you to establish good financial habits. If you can avoid using your nest egg and instead start saving for future expenses and investing early on in life, it will prepare you for a financially stable future.

What Are the Risks of Not Having a Nest Egg?

Without a nest egg in place, you may find yourself turning to credit cards or loans to make up for shortfalls when an emergency arises.

Having to resort to these methods of payment can be very costly in the long run, and you may find yourself in financial trouble if you are unable to make your monthly payments on time.

Additionally, if you do not set aside money each month for retirement or another nest egg like a savings account then it means that when you make it to retirement age you will be without the money you need to live on.

Final Thoughts

Building a nest egg is an important task for any person, but it can be difficult to do on your own without the proper guidance.

If you need assistance with your nest egg, it may be a good idea to contact a financial planner whose services are offered at no cost.

They can help lay out a plan for saving and growing your nest egg as well as what you should do if an emergency arises.

Nest Egg FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

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