How to Become a Millionaire Earning $30,000 a Year

By Investing Starting at age 25 You can Become a Millionaire

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It may sound crazy, but even if you only earn $30,000 per year, if you invest (and save) wisely and prudently you can you become a millionaire. 

Here's how to turn 30K into seven figures by age 63.

Start Investing Early

Let's say at age 25, you begin earning $30,000 annually. That’s an income of $2,500 per month, before taxes and deductions.

You should be able to save $458.33 per month and spend the other $2,000.

Remember, this is a savings rate of less than 20 percent of your gross income). Your savings of $458.33 per month amounts to $5,500 per year. Put that money in a Roth individual retirement account, also known as a Roth IRA.

You're putting $5,500 a year into Roth because that is the maximum that you’re allowed to contribute to a Roth IRA per year, based on 2016 rules. Meanwhile, you can learn more about Roth IRA’s here.

You can also put your money into a passively-managed index fund that tracks the Dow Jones Industrial Average.

There's Nothing Fancy About It

The main thing about putting money into a Roth IRA or passive index fund is that you’re not doing anything fancy. You're not doing advanced investing. You’re not day-trading or stock-picking or betting on the Next Big Thing. You're not flipping houses, starting a company, or buying stock in Apple or your friend's start-up.

You're not doing anything sophisticated or time-consuming or risky.

You’re just tracking the broad, overall market through a low-fee index fund: the simplest type of investing you can do.

The art of Compound Interest

The key is, you don’t touch your money. You never withdraw it. You just let it sit there, reinvesting its own dividends, and enjoying the power of compound interest.

Your money grows at 7 percent annually. Within 38 years, by the time you’re 63, you’ll have a nest egg of $1 million.

By saving only $458 per month, which is the amount some people spend on their car payment, you can grow a million-dollar nest egg by the time you retire.

Stepping Up Your Savings

What if you earn $40,000 per year? Can you bump up your savings a bit more, and start putting aside $600 per month?

If you do, you’ll shave three years off the amount of time it takes to become a millionaire. Rather than becoming a millionaire in 37 years, you’ll reach your goal in 34 years. That means you can celebrate your 60th birthday millionaire-style if you start when you’re 25. Not only will you retire as a millionaire, you'll also potentially be able to retire early.

The More You Save the Earlier You can Retire

At $600 per month, you’re saving only 18 percent of your gross income. If you can bump your savings rate up by another 2 percent, to a rate of $667 per month, you’ll shave yet another two years off your timeline. You’ll be a millionaire by age 58 if you start at 25.

This effect is the result of compound interest, which is the term that describes your interest and gains accumulating its own interest.

The longer you stay invested, the more compound interest works to grow your nest egg. That’s why any investor, from Warren Buffet on down, will tell you it's a great idea to start saving for retirement when you’re young.

Source: CNN Money Millionaire Calculator