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Becoming a millionaire is often seen🗹 as a feat reserved for a select few — relentless entrepreneurs, stock market gurus, trust fu🐎nd beneficiaries, and lucky game show winners.
But the millionaire﷽ club may not be as exclusive as we think. With smart planning, disciplined savings, and some time, hitting that $1 million savings goal is achiev🌺able.
Here are somﷺe expert tips for anyon🦋e to save up $1 million.
Starting early is key
Inaction is often the biggest killer of financial goals, says Kari Baer, certified ⛎financial planner and Board Member at CFA Society Tampa Bay.
“There will always be risks or events that will make you afraid to act or take that leap. The first step to any type of financial progress is to ꦜact,” she says. “You could spend your whole life sitting on the sidelines and missing so much time in your financial life.”
Every day your money in a savings or checking account that earns little interest is wasting earning pote🌺ntial. It’s also likely losing purchasing power thanks to inflation. The sooner you realize this, the better — literally.
For example, let’s say you save $1▨,000 per month (about 15% of the ) until age 60. Assuming your rate of return is 8%:
- If you started saving at 20 years old, you’d have $3,241,804
- If you started saving at 30 years old, you’d have $1,417,613
- If you started saving at 40 years old, you’d have $572,660
As you can see, saving as soon as possible gives your money more to grow, thanks to com✤pounding interest.
Compound interest is calculated on your principal savings and the accumulated interest from previous periods. This results in exponential growth of your investment over time. When꧋ people say let your money work for you, this is what they mean.
How much should you save?
If you want to earn millionaire status by a certain age, you to figure out how much to save monthly. Experts recommend putting 15%-20% of your in✨come towards savings, investments, and retirement.
This may sound like a significant amount in today’s strained economic environment. Amid inflationary pressures on the cost of living, the resumptio🅷n of student loan payments, and record-high credit card debt, savings often take a b🦹ack seat.
But suppose your number one goal is to s✱ave. In that case, you should review your budget to distinguish ♕between necessary and discretionary spending, says Vance Barse, certified private wealth advisor and founder of Your Dedicated Fiduciary.
Some luxuries — like dining out or buying ෴the latest trends — may need to get removed from your budget while you focus on saving.
”It simply means that we may ne𒀰ed to prioritize cos🍸t-saving measures in ways that many American consumers have forgotten,” Barse says.
Ideally, your income will grow as you get older and more experienced in your profession. This boosts the amount you can save and invest each month, accelerating your journey toward becoming a millionaire.
Jumpstart your retirement savings
The wealthy make their money work for them through investing rather than just standard savings accounts. After establishing an emergency fund with 3-6𝓀 months of living expenses, invest🌞ing any additional savings is key.
Focus fir𓂃st on taking advantage of tax-advantaged retirement accounts like 401(k)s and IRAꦜs. Your employer will often match your contributions up to a certain amount — basically free money!
Experts generally recommend at least contriꦺbuting enough to your 401(k) to receive the maximum match from your employer. You 💖can also continue contributing until you hit the annual limit of $23,000 in 2024.
Another type of retirement☂ account you could consider is a Roth IRA, which allows for after-tax contributions. This means you can make tax-free withdrawals in retirement. Roth and traditional IRAs allow you to contribute up to $7,000 in 2024.
You can contribute to both a 401(k) and a Roth IRA, but you’ll generally want to prioritize your 401(k) first due to the tax incentives. Retirement accounts aren’t the most flashy way to save $1 million, but their tried and true reliability makes them a fundamental part of t🅘he process.
Build your investment portfolio
Diversification plays a vital role in building your investment portfolio. By𓃲 spreading investments across different assets and markets, you can reduce ex𝓡posure to the potential downturns of any single investment.
For instance, if the general stock market experiences a temporary decline, a diversified portfolio with assets like real estate or bonds could still perform well. The better-performi♎ng investments could help offset losses ꧑and maintain overall portfolio stability.
Attempting to time the market or reacting impulsively to short-term fluctuations can lead to missed opportunities and potentially costly mistakes. By maintaining 𓆏a long-term perspective and diversifying, you can navigate market volatility more effectively and work towards achieving your financial objectives.
Unfortunately, there isn’t a perfect recipe for building a million-dollar investment portfolio. Every investor will have their own appetite for risk, influencing their ability to become a millionaire. We recommend speaking with a financial advisor who can lay out the best investment options for you, whether that be high-yield savings accounts, stocks, bonds, or some other investment.
Automate your payments
to his shareh🦩olders, “I can’t recall any time in the history of Berkshire that we made an emotional decision.”
Take it from the legend himself: Emotions and smart financial decisions don’t mix. Inveꦑsting is a game of discipline and persistence, never allowing yourself to get too high or too low.
One of the best ways to leave your emotions at the door or keep your ego in check is to automate your payments. This is the reason retirement accounts are so effective for the everyday investor. In most cas🌄es, the money is automatically ded🐲ucted from your paycheck — you never even see it. Automation eliminates the temptation to spend impulsively rather than invest wisely.
Another way to automate your payments is through dollar-cost averaging. You’d invest a specific amount of money every set period (bi-weekly, monthly, etc.). This strategy allows you to buy at all points in the market cycle and removes the emotion of trying to time the market.
Plenty of apps can help you automat♊e your investments and keep you on track.
The bottom line
Saving $1 million “takes persistence, time, and making the smart decisions along the way,” says Barse. This advice is sometimes hard to swallow in a world where social media fuels i♎nstant gratification.
But if becoming a millionaꦕire was easy, everyone would be one. However, ‘easy’ isn’t the goal here, but ‘feasible’ is. By starting early, investing wisely, and staying d🌸edicated, you have the potential to join the millionaire club.
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