To be a millionaire, you must have a million dollars in the bank. That is the definition of being a millionaire. Sounds simple, right!?
But what does it take to save that much money?
Can I Save My Way To $1,000,000?
Depending on where you are now, how much you earn and how you spend money, it will take different lengths of time and varying amounts of effort to hit your $1M goal.
But if you are willing to make the necessary sacrifices, it can be done! It is possible to save your way to a million dollars.
Before you start trying to save your way to seven figures, it is worth discussing your current financial situation with a certified financial planner; they will be able to guide you with income taxes and how to build an investment portfolio, open the right savings accounts and advise you of any investment risk you need to be aware of.
Why Should You Want to Save $1,000,000?
Saving money can provide a safety net for emergencies or when your budget gets tight. Still, most people contemplating saving their way to $1M are usually already covered with their emergency fund.
Saving your way to millionaire status is easier than you think. In fact, if you are willing to put in the work required, it is possible to save your way to a million dollars; it is just the time factor and how much sacrifice you are prepared to make that will determine your success level.
There are many reasons people want to become a millionaire.
Some of these reasons may include financial freedom, investing in retirement accounts, having a safety net for emergencies, just hitting a goal of 1 million dollars in the bank, or even giving it all away to their family.
Whatever your reason, I am here to guide you on what you can do to save your way to financial independence.
How Can I Get Started Saving Money?
Saving money can, at times, be difficult, but it is vital to remember why you are doing it.
There are many reasons why people save money, but the most common one is to prepare for the future and make sure their retirement account is healthy by the time they hit retirement age.
If you want to save $1M, you will need to start saving money today. Here is some advice on how to get started:
Let’s start with the obvious ways to save money, cut down on your takeaway coffee, stop impulse buying, and eat out less, but we all know it will take more than that to reach 1 million dollars and financial security.
How Much Do You Need to Save?
You should take a wider view of the goal and really look at what you are trying to achieve.
Saving your way to $1m can be a daunting task, and depending on how much you earn and how much you can afford will impact how long it will take to save your way to 1 million.
You will need a reasonable rate of return year on year to get to a million dollars fast; otherwise, you could be waiting for more than a lifetime for your money to get to the $1M mark.
Here are some timelines for saving $1M based on a 6% annual return re-invested and how much you would have to save to get to $1M at age 65.
Here are the steps to start saving your way to $1M.
Decide on your savings goal.
The most vital step you can take on the road to becoming a millionaire is to decide on your savings goal; we have established it’s $1M, but what are you saving for? What do you have planned for the money? What is your dream?
Whatever your reason may be, it is essential to have a target goal in mind so that you can focus your efforts, and this will help you keep pushing towards your goals when times get tough.
It is also vital to make sure your goal is realistic and achievable. Don’t set yourself up for failure by choosing a goal that is too lofty or out of reach.
Once you have decided on your goal, it is time to start!
Define a timeline.
You already have the goal of saving $1,000,000, but when do you want to reach this amount?
Do you plan on retiring with 1 million or want it in 10 years?
Make realistic monthly goals that suit your lifestyle based on the end date and calculate this back from that point.
If you assume an average return of 6% on your savings, you should be within a reasonable distance from your goal over a more extended period, like 15-20 years.
Create a budget and stick to it.
Once you have your goal and timeline, you need to set a budget to achieve that goal and timeline.
Sticking to the budget may seem obvious, but people looking to build their nest eggs and save their way to $1M need to know that sacrifices will need to be made.
This may be eating out less, going to work using public transport, cutting back on extra, unnecessary expenses, or saving every bit of extra cash you have into an index fund.
You can make significant changes over time. Just start small and simple.
Don’t tell yourself that you will never buy takeaway coffee again or eat out again; you can still have these treats, but don’t make them an everyday event.
Instead, if going out for coffee every day costs $5, try cutting back to only going out once a week and using the $5 saved each week to add to your savings or investment account.
Open the Correct Bank Account.
To start saving money, you must find the best bank account which suits your needs and goals.
There are many different accounts out there that are specifically designed for saving money.
If you have an account with a bank that pays interest, the more money you have in your bank account, the more interest you will earn on it. But you must find a bank account that has the best savings rate and the lowest fees.
Use the Bank Account.
This sounds simplistic, but an essential part of reaching your $1M goal is actually to put money into this savings account.
If you are looking to build wealth, you need to be disciplined and contribute to your savings account as much as and as often as possible.
Investing Your Way to $1,000,000.
A quicker way you will be able to get to $1m in savings is by investing the money you are saving; most current savings accounts need to pay more in interest for you to get the compounding you need to snowball your way to $1M.
So let’s look at the steps that you can take to set off on the right path in your investing journey to boost your way to $1M.
No matter what your goals are for your savings plan or your retirement plan, the first thing you should do is build an emergency fund; you have heard me repeat this repeatedly. Before investing any money, you need a liquid fund you can get at quickly in an emergency.
This will help you in an unforeseen event like a job loss, medical emergency, or natural disaster.
To start saving for an emergency fund, set aside a small amount each month and gradually increase the amount as time goes by.
Once you have set aside enough money for emergencies, you can start saving for retirement by investing in a 401k or IRA
The best thing you can do, which will get you to that $1M mark, is to save money through your employer contribution scheme.
This is where your employer will match all of your contributions 1:1, so if you put in $200, they put in $200; this is a 100% return on your money right out of the gate and is also invested pre-tax, meaning more cash is going into your 401k, this is essentially free money.
If you want to save more money than your employer matches in your 401k, open up an additional IRA account and contribute that amount on top of what you are already saving through your employer’s plan, meaning you can contribute more money to your goal. This will have a massive impact, and you can sit back and watch your money grow.
I’m sure we have all heard a personal finance guru say: “when it comes to compound interest, the sooner you get your money invested, the better.”
Funding a 401(k) and an IRA early on in life means you will contribute less overall money. You will actually have significantly more than the person who started later AND contributed more money.
You may wonder if it will make a massive difference if you start later.
Imagine this: If you deposit $3,000 annually in a Roth IRA at age 23 and earn an average annual return of 8%, you will have saved $985,749 by age 65.
This is the true power of compounding.
Saving 1 million dollars is close if you’re able to make a few extra contributions here and there. Your $3,000 contributions alone only add up to $126,000. Conveniently, a lot of your earnings will be made up in compound interest.
Now, suppose that you start contributing ten years later, when you are 33 years old and earning much more, meaning you will be able to contribute more.
With time not being on your side anymore, you contribute $5,000 yearly. You have the same goal: retire at 65 and receive the same 8% return.
Only now, your compounded earnings don’t have those extra ten years to grow.
By the time you have reached 65, you will have saved $724,753. This is by no means negligible, but not only did you end up with less, but you also had to contribute more to get there.
Deductibles Can be Your Best Friend.
If you are submitting your taxes incorrectly, you might be losing out!
It would help if you were educated on taxes to be taking advantage of all the deductions available.
Yes, we are talking about saving money here, and tax professionals can be costly, but it might be worth it; they may save you more than they cost.
In order to truly maximize your savings, you need to be tax efficient; a perfect way of doing this is by having your own business rather than working for an employer.
Other Methods for Saving Your Way to $1M
There are other methods to boost your way to save 1 million and help you retire early; let’s look at those now.
Real estate investing is a sound way to make much more money to contribute to your goals.
If you can afford a down payment on a rental property, you can rent this property out.
This has the benefit of someone else paying off the mortgage while the house is increasing in value. Thus at the end of the mortgage term, someone else has paid off the mortgage, and you are left with a property that is hopefully worth more than what you paid for it, double win.
This is a great method to boost your net worth and also get you closer to saving $1M.
Consider a Side Hustle.
As well as investments, real estate and all the things mentioned above, there is another great way you can maximize your retirement account, which is to have a side hustle alongside the current way you earn most of your money.
I have written an article about side hustles to give you some ideas on what you can do to make more money. This will allow you to contribute more to your goal of saving $1M.
Starting early can make a massive difference, so depending on when you are reading, this could make all the difference; as with anything, the earlier you get started, the better it is.
But more so with investing and trying to save your way to $1M. As we stated, the compound interest gets more powerful the longer it is allowed to run. Therefore if you start at 20 years old, it will be easier to get to $1M by compounding than if you start at 40.
Don’t Carry Debt.
This one is a no-brainer; carrying high-interest debt like credit card debt will massively impact your ability to save $1M. Don’t buy things you don’t need, and don’t spend on credit cards. You don’t need them in your wallet or purse.
I only use debit cards for purchases; if the money isn’t in my account, it means I can’t afford it.
The bottom line to the question: “Can I save my way to $1,000,000?” is yes, but most people need to save up over a long period and make cutbacks.
You don’t have to live frugally to build a solid nest egg and have enough retirement savings to retire comfortably. If you start early, spend wisely, and save regularly, you can achieve your million-dollar goal.
It’s going to take a while, and you will need some additional help in the form of investing to help you to achieve your goal of saving $1M quicker.
I hope this has helped you, and as always, reach out if I can help with anything.