Do you think that becoming a millionaire is out of reach? Even if you are just bringing home a paycheck, becoming a millionaire is in your reach! It is all about the math and compounding interest!
Our site uses affiliate links, where we can earn a commission. If you chose to utilize them, you are helping support this blog!
Basics – How to Become a Millionaire
Before I jump into the numbers, there are a few basics with this plan:
- Start early. Time is your friend when it comes to money. The earlier you start investing, the more time your money has to grow.
- “The best time to plant tree was thirty years ago. The next best time is now.” -Anon
- ***Channel this quote and get into the money growing mindset.
- “The best time to plant tree was thirty years ago. The next best time is now.” -Anon
- Identify where you will invest/what you will invest in.
- Make regular contributions. The key to compound interest is to make regular contributions to your investments. This will help your money grow faster.
If you follow these tips, you’ll be well on your way to becoming a millionaire by investing money from your paychecks.
Numbers – How to Become a Millionaire
Now that that’s out of the way, on to the numbers.
Going back to our basics, time is your friend and will help you reach 1 million. To help you visualize this, I modeled annual investments of 10k, 20k, 30k, 40k, and 50k with set rates of return. Since stocks are considered to be a fairly passive investment and accessible for most people, let’s assume that is where we are investing our money.
According to the U.S. Securities and Exchange Commission, the stock market has returned, on average, 10% per year or 7% when accounting for inflation. With this in mind, I modeled a 7-10% annual rate of return as well as some lower gains. Even with lower gains, it is still possible to hit a million, it just takes more time.
Millionaire Investment Plan
If you start depositing $10,000 a year, at average stock market returns, you would reach 1 million in 30 years at 7% or 25 years at 10%. This means it is absolutely in your reach if you start working young and plan to retire at a typical retirement age.
If you are able to save and invest more at $20,000 per year, it takes only 22 years at 7% and shrinks to just 15 years, if you can save $40,000 per year.
Now, if you are just starting out and thinking, how the heck can I save this much money to invest!?!?! check out some of our other blog articles. This one will help you build your budget and this one can help you save money now.
Stock Market Performance
Performance in the Stock Market is never guaranteed, but there are a few guidelines that may help:
- Management Fees: Be aware that funds have management fees. Typically, the more actively managed funds have higher fees. More frequent buying and selling can also come with Capital Gains taxes. Both of these can influence your returns.
- 401(k) Match: If your employer offers a 401(k) match, take advantage of it and contribute enough to get the full match! This is essentially free money that you can use to grow your retirement savings. Few other investments give you a 100% return!
- Index Funds: Since 7-10% returns are based on the overall market, you may want to explore Index funds. Index funds are a great way to invest for the long term. They track a specific market index, such as the S&P 500, and they tend to have lower fees than actively managed funds. Vanguard has a huge number of these funds with very low management fees, to help you keep more of your money. Or if you want to keep your banking and investing in one simple place, you can check out SoFi, Vanguard funds can also be purchased using their platform.
- Don’t panic sell! Remember, time is on your side. If you pull up the tree a few years in, it will not reach its full potential. The stock market is volatile, there will be losses and there will be gains. Stay calm, do not panic sell and do not try to time the market.
While this won’t make you a millionaire overnight, becoming one is more attainable than many think! The best way to get there is to understand what it takes and make a plan.
If you need some more inspiration and motivation, check out this book The Millionaire Next Door.