How to Be a Millionaire by Saving and Investing
Learn How to Save to Become a Millionaire With Small Investments
Do you think being a millionaire is out of the question for you? Think again. You can become a millionaire if you're diligent with your savings and manage your spending. The most significant factor working against your millionaire status is debt. If you can avoid consumer debt and start investing every month when you're in your 20s or 30s, you can be a millionaire by the time you retire.
Even if you're starting from zero, saving a million dollars is possible. For example, if you have managed to avoid debt but haven't started saving, your first step should be to put your investments into a tax-deferred account, such as a 401(k) through your employer.
Historical trends indicate that you can expect your investments to grow at the rate of 12% a year. This return is based on the average annual performance of the stock market over the last 100 years, which spans a considerable amount of economic events.
The average return of 12% is a very long-term average, and your investments might be up or down at any given time. The long-term return is what matters in investing, so don't focus too much on the short-term.
The Math of Becoming a Millionaire
If you're starting at $0, investing in a tax-deferred account, and assume a 12% return over the long haul, here's how much you need to save to create a $1 million portfolio.
If You Invest $50 per Month
Setting aside $50 each month doesn't seem like a big sacrifice. At this rate, you'd create $1 million in 44 years and five months. But 44 years is a long time. You should consider investing more than $50 per month.
If You Invest $100 per Month
With an investment of $100 each month, it will take 38 years and eight months for you to become a millionaire. If you start saving at age 25, you'll be 63 by the time you're a millionaire.
If You Invest $200 per Month
Saving $200 a month in investments for 33 years will make you a millionaire. At the rate of $200 per month, you'll be a millionaire 5.5 years earlier than if you saved half that much, which shaves a half of a decade off the time it takes you to create a million dollars.
If You Invest $400 per Month
You'll be a millionaire in 27 years and four months when you invest $400 each month. That means if you're 25 now, you'll be a millionaire at age 52, which could allow you to retire earlier than you had initially planned.
If You Invest $750 per Month
Investing $750 each month for 22 years and four months will make you a millionaire. If you're 25 now, you could have $1 million by the time you reach age 47. Imagine what you could do if you never had to work again before you were considered middle-aged.
If You Invest $1,000 per Month
Twenty years is all it takes to create $1 million when you invest $1,000 each month. If you have a baby today, you'll be a millionaire in time for your child to graduate college or get married.
If You Invest $1,500 per Month
Putting away $1,500 a month is a good savings goal. At this rate, you'll reach millionaire status in 17 years and one month. This will get you to your goal over 40 years earlier than what you'd get if you were investing just $100 a month.
If You Invest $2,000 per Month
Could you imagine being a millionaire in 15 years? If you can manage to save $2,000 a month, that's what could happen. Many women wait until their early 30s to have children, and starting to save at the age of 20 could give you $1 million by the time your first child is born.
How Much Can You Save?
Thinking about becoming a millionaire is exciting, though it could leave you wondering whether saving $2,000 a month is even possible. The simple answer is that it is achievable if you earn more and spend less. Investing that amount wouldn't be too much of a stretch if you're careful with your finances and stay away from consumer debt.
Many companies offer a 401(k) match up to a certain percentage of the amount you contribute. For instance, if you contribute 4% of your income and your employer has a 4% match, your savings rate could be 8%. Take advantage of this free money to double your savings rate and reach your goal of being a millionaire even faster.
If your employer doesn't offer a 401(k) match, or if you're self-employed, take the reins and invest your savings into tax-advantaged accounts like a traditional or Roth IRA and an individual 401(k) account.
The important thing to remember is not to make excuses to forgo saving and investing your money. If you want to be a millionaire, take responsibility for your financial future by saving money each month, and your goal will become a reality.