Have you ever wondered how to save $1 million dollars? Almost anyone can become a millionaire if they make a commitment to save early on in their career and stick with it over several decades. There is a magic monthly savings number out there for you and we will show you how to discover it.
Putting money away for the future beginning at a young age makes it much easier to become a millionaire by the time you retire. Whether you want to save $1 million early, late, or by the typical retirement age of 65, the number of years you have left will determine how much you need to save each month to reach a million dollars. If you start saving for retirement at age 25 and save $4,830 per year, or about $400 per month, and earn 7% annual investment returns, you will accumulate just over $1 million by age 65. Compound interest does much of the work for you. If you wait until age 35 to start saving, you will need to save over $10,000 per year to hit $1 million by 65, assuming the same investment returns.
As a rule of thumb, most financial advisors suggest you save 10%-15% of your annual salary. Third Coast Bank finance experts crunched the numbers, and we can tell you exactly how much of your paycheck you should be tucking away to get you to that magical number of $1 million.
Tips to Help You Get There:1. Stop Senseless Spending
Usually, in order to become wealthy, one must adopt a disciplined lifestyle and budget. This means that people who are looking to build their nest eggs need to make sacrifices somewhere; this may mean eating out less frequently, using public transportation to get to work, and/or cutting back on extra, unnecessary expenses. This does not mean that you should not go out and have fun, but you should try to do things in moderation and set a budget if you hope to save money. Fortunately, particularly if you start young, saving up a sizable nest egg only requires a few minor (and relatively painless) adjustments to your spending habits. If you do not already have a savings account, now is the perfect time to open one. Visit our TCB personal savings account page to learn more!2. Start Planning for Retirement Now
When individuals earn money, their first responsibility is to pay current expenses such as rent or mortgage, food, and other necessities. Once these expenses have been covered, the next step should be to fund a retirement plan. Retirement planning is often an afterthought for many young people. Here's why it shouldn't be: funding a 401(k) and/or an IRA early on in life means you can contribute less money overall and actually end up with significantly more in the end than someone who put in much more money but started later.
Here is a bit of a breakdown on how compounding interest works much to your advantage by starting young. If you're 23 years old and deposit $3,000 per year (that's only $250 each month) in a Roth IRA earning an 8% average annual return, you will have saved $985,749 by the time you are 65 years old due to the power of compounding. If you make a few extra savings contributions, a $1 million goal is well within reach. This means most of your earnings are in interest. Your $3,000 contributions alone only add up to $126,000!3. Own Your Home
Many of us rent a home or an apartment because we cannot afford to purchase a home or because we are not sure where we want to live long term. In situations like this, renting is a better option. However, renting is often not a good long-term investment because buying a home is a good way to build equity. Owning a piece of real estate is also an investment that typically grows in value over time. This way, over time you can build up some equity and the foundation for a nest egg. If you are looking to buy a home, Third Coast Bank’s mortgage team of professionals can help find home financing that is best for you. Head to our mortgage page to learn more.4. Get Creative to Earn More
A side hustle is a great way to supplement your income and help you earn more each month. An increase in your income is an excellent way to increase your rate of saving. The bigger your paycheck, the bigger the amount of savings you are able to put away each month. This could be something as simple as turning a hobby such as needle point or candle making into something you can profit from by selling your creations. Others use their days off to drive for ride share services to make a little extra cash on the weekends. Don’t be scared to get creative and always keep your eye out for other opportunities to make some extra money when you can!
You do not have to win the lottery to see seven figures in your bank account. For most people, the only way to retire with a million dollars is to save it up over time. If you start early, spend wisely, and save diligently, your million-dollar dreams are well within reach.