Didn’t get picked for the latest reality show? Was your last lottery ticket a dud? Did your wealthy great-aunt Martha forget to leave you in her will?
You may have heard your grandmother say there’s more than one way to skin a cat. Well, there’s more than one way to retire a millionaire!
While it may not be as exciting as winning the lottery, making a deliberate choice to save on a daily basis will bring you closer to your goal of being a millionaire. In fact, that’s how most millionaires are made!
No doubt you’ve heard of paying yourself first. No, that doesn’t mean buying designer shoes before anything else! Paying yourself first is making sure you automatically set aside money for your future each month. You can accomplish this by either setting up your direct deposit to have a portion put into your savings account or set up direct transfers from your checking to your savings account. Having your money systematically and directly sent from your paycheck or your bank account to your savings account is the best way to save. If you don’t see it, you won’t spend it.
So how much do you need? If you start saving $995.51 a month at age 30 with a six percent return, you will be a millionaire by the time you are 60. If you wait until you’re 40, you’ll need to save $2,164.31 each month! So, you can see how important it is to start saving early! Try an online calculator to figure out how much money you need to save for retirement.
If you haven’t already done so, signing up for your 401(k) plan at work would be a great move. In addition to your own contributions, your employer may have a matching contribution that will help you reach your goal. That matching contribution is free money!
How do you come up with the rest? First, take a look at your discretionary income (the money you spend on things other than necessities, such as food, clothes and rent) and try to come up with a budget. Are there places where you can cut corners to increase your “millionaire” account? Can you cut down on the cost of your essentials? Perhaps you don’t really need super-expensive designer jeans to survive. Another tip is if you get a raise (or a higher paying job), save the increase instead of spending it and bank any bonus (or income tax refund) you might receive. If you are really passionate about becoming a millionaire sooner rather than later, you may also consider getting a second job.
For many people, owning a home has been a practical long-term means to building net worth, although it isn’t generally easily transferred into spendable cash, such as a portfolio of stocks and bonds. But you’ll still need a place to lay your head at night when you retire!
What about how to invest? The return you get on your investment and when you plan to retire will greatly affect how much you must save each month to meet your goal. Historically, stocks have returned more than bonds, so you are able to take on more investment risk when you are young. However, as you near retirement you may want to shift your allocation into stocks a little less aggressively. If the thought of the stock market dropping makes you a little queasy, just remember that those monthly investments when the market is down is similar to finding a Prada bag on clearance.
A financial advisor can help you determine how much risk you can handle and properly allocate your savings. She or he can help you choose between tax qualified and nonqualified investments, mutual funds and individual securities, allocating payments to reduce debt or directly increase savings. She’ll discuss taxes and inflation, risk and reward, dividends, interest and capital gains and will help you with the myriad of financial issues that are unique to your situation. And having someone to talk to during the rough spots in the market will help you stay the course and meet your long term goal.
Now, who wants to be a millionaire?
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