Have you ever dreamt of being a millionaire but didn’t think it was possible? It turns out you don’t need to win the jackpot to get there. All you need to do is set aside some money every month, then let the magic of compound interest happen. You can, indeed, become a millionaire by the time you’re 67 with this strategy. The numbers below explain how you can achieve this.
NerdWallet is a great website that talks about all kinds of personal finance topics. They have done the math to show how much you need to save each month to be a millionaire. Of course, it takes less time when you start out early. Fortunately, they did the calculations for starting at the ages of 23, 30, 35, and 40.
To perform the calculations, they used a couple of assumptions for consistency. One of these is that you put aside the required amount every month without fail, after starting from zero. Another assumption is that your investment earns you an average return of 6% per annum, with annual compounding of interest. This means that instead of withdrawing the interest you earn, you leave it in your investment account and start earning interest on your principal investment, as well as on that interest. This methodology can make you a millionaire where simple interest could not come close.
So, if you start saving $415 every month from the time you’re 23, you reach millionaire status by the time you’re 67. If you start a little later at 30, you can reach the same level by saving $651 each month. If you begin at 35 or 40 years, you need to make a monthly savings of $912 and $1,300 respectively to reach the goal.
As you can see, when we break down the numbers, it’s actually not that difficult to become a millionaire with a bit of consistency, a good strategy, and a good investment account. If you set your mind to saving up a set amount, not necessarily a million dollars, you can achieve your goal if you are focused.
Take into account your unique situation and goals, and design a strategy that works for you. For example, maybe you only start saving later than 40. You can still gather up a lump sum of savings by the time you retire when you have the compounding effect working on your savings. Or say you run into some additional expenses and are not able to save for a couple of months. As long as you get back to saving consistently as soon as you can, you can still make it far.
Another factor that could work to your advantage is if you find an investment account that offers more than the assumed 6% annual interest. There are many options out there such as a 401(k) retirement plan from your workplace, Roth IRA, or other retirement savings account. By doing a bit of research to find a good investment opportunity and being consistent in your savings, you too can become a millionaire by the time you retire.