Everyone wants to become a millionaire. Yet despite the incredible wealth in this country the majority of Americans never reach the $1 million milestone.
Many people don’t believe they can ever reach this goal. I hear complaints all the time that the “system” is rigged, or it’s simply impossible to become rich anymore. This type of mentality is designed to make you believe this dream is unattainable. Even with the challenges facing our country, the opportunity is still there to join this elite club.
Keep in mind that simply having a million dollars may or may not be enough to secure your retirement. First of all, healthcare costs and inflation will have a big impact on retirement income needs. Plus, each person has a different idea of what they want in retirement. So, a million dollars can seem like a pittance to one individual but feel like a windfall to another.
So, just how easy is it to become a millionaire?
The math behind it is very simple. Getting there is easier said than done for most people. Let’s look at specific dollar amounts saved each month and average investment returns over 30 years to get an idea.
Here is a chart I put together detailing an estimated annual investment rate of return from 1%-10% on the left side and savings that equate to $100-$1,000 per month on the top. It’s projected over 30 years providing an ending total.
Note: The chart is a linear estimate with no down years, assumes no inflation, taxes, or investment fees, and compounds the return annually.
Chart Highlights
This chart is full of interesting facts. I’ll start by highlighting what it looks like when a person saves the lowest amount per month at $100 while earning the highest 10% rate of return compared to the person saving the most at $1,000 per month while earning the lowest 1% rate of return.
The $100 per month saver earns a nice 10% return but only ends up with $218,332. The big saver at $1,000 per month ends up with nearly double the money totaling $433,593 while taking the least amount of risk at 1%. The $1,000 per month saver is also on track to end up with more than $2 million dollars if they average a 10% return.
This illustrates the importance of the amount of money you set aside in your retirement plan.
To reach millionaire status all one needs to do is start saving $500 per month. Then, if you can average a 10% return over 30 years you’ll join an elite club coming in at $1,091,661. Saving more money each month further cements your position in life. Investing $1,000 per month while earning a 10% return will get you to millionaire status in approximately 23 years.
Saving more money also provides leeway to take less risks with your money. Based on the chart your money can average a 6% return each year while investing anywhere from $500-$1,000 per month. That should be comforting news to everyone, especially those less prone to take risks with their money.
Better yet, you generally don’t have to save all this money on your own. The most common example would be an employer matching contributions to a 401(k) plan, stock grants, or profit-sharing benefits. If your employer offers either benefit, you should take advantage. After all, it’s more money in your pocket as a reward for being a great employee.
How can you take action?
Simple. You just need to set aside one of the desired amounts and begin investing at your targeted rate of return.
Now what that really entails is executing the following:
- Review your monthly income and expenses(Try Valor Advisers Free Net Worth Tracker).
- Determine what amount you can reasonably set aside.
- Set up automatic transfer from your bank account on payday to your investment account.
- Invest the funds at your target risk level.
Of course, you may look at your expenses and say, “Well, geeze, I have no money left after I pay my bills.” This is where a financial professional can add value. For example, at Valor Advisers I take an outside view of your expenses and help identify areas to save money you might not have known were possible. I have a conversation with all my clients about what they spend money on, why, and what is/is not important to them. Then, we develop a plan to save money each month, and I start investing funds in a strategy tailored to you.
While the strategy above is easy and simplistic, it still requires you to stick to a plan. As with any plan, execution is key.
So, what is your plan going to be?
Click the website’s Get Started button to take your first step!
