How to Become a Millionaire by 30

Reaching Six-Figure Status by Age 30 Requires a Solid Financial Plan

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Saving $1 million for retirement is a lofty goal and for many young adults, it's one that seems out of reach. According to a Wells Fargo survey, 64 percent of working millennials say that a seven-figure retirement isn't in the cards. Four in 10 millennials have yet to begin to set aside money for their later years. 

The reality is that achieving millionaire status is doable for millennials if they're taking the proper steps to plan ahead. In fact, it's possible to reach the million-dollar mark by age 30. The secret of how to become a millionaire begins with understanding which financial habits can help you grow wealth. 

How to Become a Millionaire By 30: Start Early

One of the most powerful tools millennials have for saving $1 million by 30 is time. As you save and invest, your money earns interest. That interest compounds, meaning your interest is earning interest. The sooner you begin saving and investing, the longer your money has to grow. 

Consider this example. Assume that at 16 years of age, you got your first job and opened a Roth IRA. You contribute $5,500 to your account each year, up to age 30, earning a 6 percent annual return. That would give you a little over $122,500.

Now, let's say you get your first professional job at age 22. Your employer offers a 401(k) match worth 100 percent of the first 6 percent of elective salary deferrals you make. To max out the $18,500 contribution limit allowed to the plan each year, you contribute 37 percent of your $50,000 salary. With a 2 percent annual raise and a 6 percent annual rate of return, you'd have over $216,000 in your plan by age 30. 

So far, you've accumulated more than a third of your million-dollar goal. If you were to continue saving at the same pace, earning the same rate of return, you'd easily have $1 million by age 40. By age 65, that would grow to more than $6 million. That illustrates how important an early start is, and how important compound interest can be to your wealth goals. 

Save to Invest

The previous example shows how it's possible to save close to $340,000 just by saving in your IRA and a 401(k). But, you still have some ground to make up to get to $1 million. So how do you that? If you want to learn how to become a millionaire, you need to know the difference between saving and investing

When you're saving money, you're most likely putting it in a low-risk vehicle, such as a savings account, money market account or certificate of deposit. These accounts are safe, meaning the odds of losing money are low. But, you can't generate significant wealth when you're earning a low rate of return on what you save. 

When you invest in things like stocks, mutual funds or real estate, you increase the risk factor. The trade-off, however, is the potential to earn much higher returns. 

Going back to the previous example, assume that you took the same $5,500 you could put into a Roth IRA and save it in a high-yield savings account instead. Your account earns 1 percent interest, compounded monthly. If you save that amount each year from age 16 to 30, you'd earn approximately $16,000 in interest. The Roth, however, would have grown by $55,000, assuming a 6 percent return. 

While it's wise to have some cash tucked away in an emergency savings fund, you'll still need to invest if you want to reach $1 million by age 30. Maxing out tax-advantaged accounts, such as an IRA and a 401(k), will get you closer to the goal. Utilizing a taxable brokerage account to invest in the market can help fill the gap. You'll pay capital gains tax when you sell an investment in your taxable account at a profit, but that may not be an issue if you're investing for the long-term. 

Diversify Your Income Streams

Working at a 9 to 5 job can help you generate income to invest but if you're on the path to $1 million, you may need to add other income streams to the mix. 

Freelancing is a popular option for many millennials. An estimated 57 million Americans do some type of freelance work, according to Upwork and the Freelancer's Union. Starting a side hustle by offering freelancing writing, virtual assistant, coding or design services could lead to more income that you could funnel into your million-dollar investment plan. 

Investing in real estate is something else to consider. A survey from real estate crowdfunding platform RealtyShares found that 55 percent of millennials are interested in real estate investing. Owning a rental property, for example, can generate a steady stream of income monthly. The income is passive, meaning it comes in regularly as long as you maintain consistent tenants.

Additional ways to build passive income include investing in peer-to-peer loans, creating and selling an online course or product, affiliate marketing or renting a room in your home on Airbnb. Some of these methods require more of an initial investment of time and money than others, but they can all lead to regular income to supplement your paycheck. 

Track Your Goals and Know Your Value

Saving and investing $1 million by age 30 is a big target to hit and it helps to track your progress. Breaking it down into smaller goals can make the process more manageable. For example, you may set monthly, quarterly and annual goals as you work to reach $1 million in savings and investments. 

It's also important to be conscious of your value, and how that correlates to your ability to build wealth. Negotiating a raise at your job, for example, could yield more income with which to save. Utilizing your skills to become a freelancer or sell a product online could do the same. The key is to know your true worth and how to leverage it to reach your goal.