Do you think that making millions is only a pipe dream for you? While it feels like something that you can’t achieve, it’s actually a pretty realistic goal these days. Even those who are making meager earnings can become millionaires. It’s all a matter of managing your budget and finances.
If you don’t believe us, then consider the following examples below. All these pertain to managing spending, being diligent with savings, and keeping that same pace for a long period of time.
Prime Factors For Hitting Millionaire Status
Before delving into the examples, it helps to know the biggest factors working against you. There are only two: debt and your time. By all means, becoming a millionaire in 2020 is possible regardless of your own situation. Provided that you keep those two factors on your side.
If you’re able to avoid any kind of consumer debt and begin investing monthly during your 20s or 30s, you’ll be a millionaire by the time you hit your 60s, the usual time people retire.
There are all kinds of ways for you to save, but the most popular form is to put your investments in tax-deferred (or tax-free) accounts. 401(k)’s are an example or even a standard saving account works.
If you happen to have debt, you can always consider a balanced approach. Work to reduce your debt while still working on investing in your retirement accounts.
Examples Of Becoming A Millionaire
According to Vanguard’s calculation, a portfolio of 100% stocks would have an average growth of a little over 10% each year between 1926 and 2018. By using this particular average, we can calculate the time you need to have a million dollars or more. For these scenarios we’re going to assume you’ll have a long-term average return of 10%.
With that in mind, it’s a given that some years are going to result in annual losses. The information Vanguard has presented actually showed that 26 of the 93 years they examined resulted in an annual loss.
While many people might panic from that (especially in 1931 where the year’s loss was 43.1%), you shouldn’t concern yourself over short-term gains and losses. When you are building a retirement account, you want to be thinking long-term in everything.
With all that said, assuming you’re starting with $0 for your retirement account and the average return is 10%, here is how much you’ll need to make a $1 million portfolio.
Note that these estimates are rough calculations based on the calculations of this compound interest calculator. There are several unknown factors, especially when it comes to investing.
Never assume that your returns are guaranteed. Instead, see these calculations as calculations that’ll guide you to your own savings goals.
Investing $50 Each Month
The first example is setting aside only $50 every month. This is something that most people can afford without any big sacrifice. That aside, you’d think that $50 doesn’t seem like it’ll do much to make you a millionaire. It feels like it would take ages to get there right?
You’re not wrong, but it’s a bit shorter than you’d think. At the rate of sacrificing that little bit of money every month, you’ll hit $1 million just under 54 years. Unless you’re in your teens or early 20s, this may not seem too bad. That said, it’d be better and easier for you if you can set aside even more in the future or start with larger contributions.
Investing $100 Each Month
Double the investment should shave off half the time right? That’s not how money works. Rather by investing $100 every month will ensure that you’ll shave off about seven years. While it doesn’t seem like much, time is everything. The younger that you are, the more time you’ve got to enjoy your harvest. And one can do a lot with seven extra years and a million dollars in their pocket.
Investing $200 Each Month
So how would investing $200 a month do? Well it would reduce the amount of time by a notable amount. Compared to those investing $50, those investing this much each year will hit their millionaire status about 15 years before those individuals. Overall it would take 40 years for you to make your million by this point. I’d say for most people working, this is a good rate of saving each month to go for. This is also assuming that you’re being frugal with your spending too.
Investing $400 Each Month
If you think you can afford putting away even more money, aim for $400 each month. By doing that, you’ll obtain your millionaire status in 33 years from now. If you’re starting in your early to mid 20s, you’ll be able to obtain this status by late 50s early 60s. This is nice because you’ll be able to retire earlier than most people on average.
Investing $750 Each Month
Naturally, getting into larger numbers will mean you’re shaving off even more time. This time, you can bring this number down to 26 years before you hit your millionaire status. For those in their 20s or 30s, you’ll enjoy that status by your 50s to early 60s. This is remarkable especially since you’d be contributing less than $250,000 out of your pocket – close to the average price of a modern day home in the US.
Investing $1000 Each Month
For those who are looking to speed up the process considerably, your best bet is setting aside four figure money every month for saving purposes. For those setting aside $1,000 every month, you’ll be able to make your million in under 24 years. To put it into perspective, if you have a child this year, you’ll be a millionaire by the time they graduate from college.
Investing $1500 Each Month
Even if you’re not planning on becoming a millionaire, putting away $1,500 every month and still getting by is a good savings goal to reach. At this particular rate, you’ll be able to achieve the status in under 20 years.
Investing $2000 Each Month
Based on our scenario, if you can consistently set aside $2,000 each month, you’ll be able to enjoy your millionaire status in 18 years from now. It feels surreal, but it’s definitely in the realm of possibility for those who are earning a considerable amount of money and can afford setting aside this amount. If you have a newborn today, you’ll be a millionaire by the time they graduate high school.
So How Can You Increase Your Savings?
While these examples all sound appealing on paper, however, how are able to set aside that kind of money aside right now? Of course the smaller amounts are easier to sacrifice. Setting aside $100 every month for saving means giving up on Starbucks, but how can you set aside $1,000? Or how about $2,000?
It all seems so out of reach, however it’s not as complex as it looks.
There are two big ways to increase your savings: earning more and spending less. The more money you have to play around with, the more flexible you can be with your finances and the more you can put into your savings.
As we’ve mentioned at the beginning, if you can control your impulses and avoid consumer debt, you should be able to save more the further you progress in your career.
One helpful tactic that’ll help you is to put together a budget and look at your spending habits. You’d be surprised how much money is spent on particular goods. Again, most people on average spend over $1,000 each year on Starbucks. Going there less often or not at all can translate to hundreds being freed up every month for you to put into savings. This same logic can also be translated to dining out as well or other frequent spending habits.
On top of that, here are some other considerations for you in terms of savings.
Employ Sponsored Retirement Plans
A lot of companies offer 401(k) retirement plans these days. On top of that, many include matching contributions up to a certain percentage. This is good as you can effectively double your contribution and only spend half the amount required to enjoy that. For example, if you contribute 4% of your income, your employer may be able to match that same 4%, doubling your savings to 8%. This might not seem like much but if you’re earning $800 each week, that means $250 is being put into your savings each month and you’re only spending $125 to do it.
All in all, this is free money that you can use to double your savings rate. And provided you plan to stay with the company for a while, you could enjoy the millionaire status in 35 or so years. This is based on both scenarios of investing $200 per month and the one above.
Individual Retirement Accounts
But what if your employer doesn’t offer a 401(k) or matching options? What about those who are self-employed? Are you out of luck? Not necessarily. While it would be ideal to have a 401(k), you can still work to save in tax-advantaged retirement accounts. One avenue is Individual Retirement Accounts (IRA) as well as individual 401(k) accounts.
The only thing to note about IRAs is that there are contribution limits placed. These all depend on how much money you’re bringing in. Of course, it would be ideal to maximize your contributions to that legal limit.
Saving and investing is an important goal for any person who is looking to enjoy large sums of cash during retirement. Regardless of how much extra money you’ve got by the end of the month, there is absolutely no excuse for you to not save for the future. For those looking to be a millionaire, it’s the key that you take responsibility now and set aside money for saving every month. Only then will your goal become a reality.