One million dollars. The seven-figure club. The most famous quote from Austin Powers … “One MILLION dollars.”
While a million dollars doesn’t have the same wow factor as it once had (Thank you, inflation), becoming a millionaire is nevertheless still a great financial accomplishment.
To save $1 million you have to be consistent and persistent in your approach to earning and saving money. Here’s everything you need to learn to achieve the huge financial milestone in your life.
In This Article
- How to Save One Million Dollars
- The Million Dollar Calculator
- How to Save $1 Million With No Savings (By Age)
How to Save One Million Dollars
As you can tell from the examples above, there are a lot of the same recurring themes, regardless of age, savings, and estimated returns. Basically, if you want to save $1 million you have to have the right financial habits. Without the right habits and discipline, it’ll be nearly impossible to hit the seven-figure mark.
As Aristotle said, “We are what we repeatedly do. Excellence, then, is not an act, but a habit.”
Here are the best financial habits to help you save $1 million.
1. Be Clear About Your Goal
Before you think about how to save $1 million, ask yourself first, what is your goal? Because your goals, and the reasons for your goals, are the driving force behind why you do what you do in any area of life. If money isn’t a huge deal to you then it will be nearly impossible to be disciplined enough to save your first $1 million.
But if you’re like most people and you want to join the $1 million club, you need to be crystal clear about your goal. To achieve any goal in life you need to put a date and plan around the goal to make it happen. If your goal is to save a million dollars that’s great, but ask yourself, by when? Forty-five? Fifty-five? Sixty-five?
Your spending, saving, and earnings habits may have to change (sometimes greatly) to save that much money. The sooner you want the money, the harder you will have to work at saving, earning, and growing your income. But, if you want it by retirement age then it’s a totally different story.
2. Track Everything
As motivational speaker Peter Drucker once said, “If you can measure it, you can manage it.” To help you save your first million it’s incredibly important to track everything. And thanks to apps like Empower, it’s never been easier.
With Personal Capital you can track your income, expenses, savings rate, and investing performance on a regular basis, easily. Once you sign up they will even send you a weekly email to give you updates on your progress.
I tend to check mine every month and update everything on a Google doc tracker as well so I can include other assets.
3. Earn More Money
Try to make as much money as you can and invest it as soon as possible. The more money you can invest now, the more it will grow, thanks to the power of compound interest.
Ask your boss for a raise, start a side hustle outside of work or build your own business. Thanks to the internet and apps, it’s never been easier to make money outside of work.
4. Invest More Money Into Stocks
I remember playing golf with a very wealthy financial advisor in Scottsdale, Arizona last year. When I told him how I had my money allocated (roughly 70% stocks, 30% bonds) he laughed. He basically told me, to look at history.
If the stock market has been returning around 8% why even bother with bonds if I can’t touch my 401k until 65 (roughly 35 years away)?
He made a good point. I switched my 401k to 100% stocks and figured I’d let it ride. While I’m not saying this is the right move for everyone, know that when you’re younger, you have a longer time horizon. This allows you to be a little riskier and potentially earn more money!
5. Increase Your Savings Rates
If you can increase your savings rate by 1% every 30 days you would save at least 12% more each year. While that may seem like a ton, doing it once a month won’t impact your finances very much.
The impact could be huge! If you are starting at a 10% savings rate, and you increase your savings rate by 1% every 30 days, you would save 46% in three years. This will make a huge difference in your ability to save $1 million.
6. Invest in Yourself
Study wealthy and successful people and it’s easy to spot that they all have one thing in common: They invest heavily in themselves. Whether it’s reading books, attending events or hiring coaches to get better at certain areas of business, it almost always pays off.
If you want to save $1 million you have to think like a millionaire. Don’t think like an average person who overspends, watches too much TV, and doesn’t attempt to learn and develop themselves. Model your behaviors and daily rituals around successful people to become one yourself!
7. Pay Down Debt
Debt is the enemy keeping you from hitting the $1 million mark. If you want to save a million, you have to knock out debt, fast! Whether you use the snowball method or another way, make paying off debt your number one priority.
Start with high-interest credit card debt and then focus on student loans. And if you can’t pay them off yet, make sure to look into a student loan refinancing option as well.
8. Take Advantage of Employer Contributions and “Free” Money
Who doesn’t love free anything? Yes, there are some options out there to take advantage of free money and start saving toward your future.
- Max your 401k by saving at least enough to get your employer match.
- If you’ve got a high-deductible health insurance plan, think about using an HSA. Health savings accounts allow you to put aside pre-tax money that you would spend on health care anyway. If you don’t spend it then the money rolls over to the following year and earns interest as well.
- Open a spousal IRA if you or your spouse don’t have access to a 401k.
- Conduct a Roth IRA analysis to calculate the cost of converting past IRA savings to a Roth IRA.
- Make sure you are investing in low-cost index funds and not wasting money on high-cost mutual funds that eat into your returns.
9. Stay Committed to Your Plan
Don’t day trade stocks or start looking for a quick return. Deal with “shiny object syndrome” by staying committed to reaching your financial goals. The market will go up and down unexpectedly, but stick with it and keep investing as much as you can.
Don’t risk your future for a risky, short-term potential gain. Stay committed to your plan and don’t let anyone tell you otherwise.
The Million Dollar Calculator
Thanks to apps like Empower and free calculators it’s never been easier to save, invest, and reach your financial goals. Like any goal, saving $1 million is all about tracking spending and managing your money to ensure you are making progress. Bankrate has an amazing free calculator to help you understand what you need to do to become a millionaire.
As I was researching this post I found this free calculator and realized I had used it before. About two years ago actually. At that point, I wasn’t a writer on these types of sites, but I was a massive reader. I was fascinated with early retirement, entrepreneurship and personal finance.
At the time, I was working on a lucrative career but, like many, I was miserable with the 9-5 life. Even with a hefty savings rate and high income, I started to realize it was going to take longer than I wanted to become a millionaire and reach financial independence.
At the rate I was going it wasn’t going to happen until my mid 40’s, which is still good, but I didn’t think I could survive and work somewhere that robbed me of happiness on a daily basis. So I quit the job and decided to pursue entrepreneurship. I knew some of the wealthiest and most successful people in the world achieved that wealth because they became their own bosses.
While I’m not recommending you quit your job as I did, just know that your goals and overall life happiness are more important than money. Sure, money can help get rid of a lot of burdens in life, but don’t forget to enjoy life.
That being said, here is a breakdown of how to use the million-dollar calculator to help you figure out how to reach your goal.
Million Dollar Example
I want to show you how to use this million-dollar calculator so you can achieve your goal by your specified date. For the example, let’s assume the following using the Bankrate financial calculator that we link to above:
- You’re 35 years old and want to retire at the typical age of 65 years old (this way you can start withdrawing money from your 401k and IRA without any early withdrawal penalties).
- You have $25,000 invested in the stock market. This could be in a Roth IRA, 401k, CD, or a combination of all accounts.
Millionaire Target Range
The example shows you what you need to do to save a million dollars by 65. But what if you want to retire early and make more money? Simply change the millionaire target range on the calculator to help you figure out what you need to do to hit your goal early. I recommend printing out your goal and putting it somewhere you can review it on a regular basis.
Amount Currently Invested
In the example, I chose $25,000 currently invested in the stock market. This could or could not include other investments such as a home. If you have more invested, simply update the “currently invested” figure and the calculator will show your more details about saving your first million.
For example, here’s what would happen if you increased or decreased the amount you already have invested..
Decreased to $10,000 invested
You wouldn’t hit your millionaire age until you were 66, only one year difference.
Increased to $40,000 invested
This speeds up the process of becoming a millionaire by two full years. This is all based on compound interest and the 7% expected rate of return.
Savings Per Month
The calculator makes it easy to change the toggle bar and show how your net worth will change based on your savings per month. In this example, you would need to save $700 per month for 30 years to hit the $1 million mark.
Thanks to compound interest you only end up saving $252,000. The remaining amount comes the power of compound interest! That’s why it’s important to start saving early and often. As Albert Einstein said, “Compound interest is the 8th wonder of the world.”
Here are a few examples of how long it will take you to save $1 million if you decrease or increase your savings rate:
Decrease to $350 per month
You won’t hit the $1 million mark until you are 72! By not saving the additional $350 each month you are adding on another seven years of hard work!
Increase to $1,000 per month
By increasing your average monthly savings to $1,000 per month you become a millionaire at 61 years old!
Expected Rate of Return
For the example, I used a 7% rate of return. Historically, the stock market (S&P 500) has had slightly higher annual gains — between 8-9% over the past century. But, I wanted to go a little lower to make sure you can save a million dollars by the time you’re 65.
Here’s what would happen if you increased or decreased your rate of return while still saving $700 per month:
Decreased to 5%
You won’t save $1 million until you are 72! Luckily, if history repeats itself you shouldn’t have to worry about 5% returns. By investing in low-cost index funds like those sold by Vanguard, or using robo-advisors (check out Wealthfront or Betterment), you should be able to find great options that return at least the market average.
Increased to 9%
This is huge! By increasing your expected rate of return to 9% you hit the $1 million mark at the age of 60. Keep reading to learn more about what you should invest in to get higher returns and reach your goals faster in the next section.
Expected Inflation Rate
The Bankrate calculator is great because it has a feature to allow for your expected inflation rate. Without taking this into account, it’s easy to miscalculate how long it would take to save $1 million. The calculator automatically sets the inflation at 2.9% as that is the historical average.
Spend some time playing with the million-dollar financial calculator so you can understand how your savings and investments can affect your retirement age.
I love using the calculator because it makes it easy to visually see how your little decisions, like saving money each month, can greatly impact when you hit the millionaire club.
Using this calculator can make you see how a few small changes in your spending and budgeting can help you shave a few years off of your financial goals.
Once you go through and understand what you need to do to become a millionaire, check out these tips to help you save, earn, and claw your way into the million-dollar club.
Understand Average Returns
No one ever got rich from investing or storing their cash in a savings account. To save a million dollars you need to understand where to invest your money so it can earn returns while you sleep. Here are the most common ways people invest:
Cash is great for an emergency fund in a safe savings account but, beyond that, it’s a horrible idea to help you become a millionaire. With an average of 3% inflation, you’re basically losing money by not having extra cash invested in the market.
Cash doesn’t just include the benjamins in your wallet, either. Cash includes anything that is sitting in savings account or money market account with low rate of returns.
By all means, keep your emergency fund in a place where it’s easy to access. But any cash you have beyond that would be better placed in an account that earns higher returns.
Bonds have historically been safer than stocks, but also not nearly as profitable. The risks aren’t high nor are the returns. If you look at the 10-year Treasury Bond, the average annual return for the past two decades was 5.31%. It’s slightly higher — 7.11% — in the past half-century.
Bonds or bond funds should be part of your portfolio but shouldn’t make up as much if you are in the wealth-building phase of your life as they should later on. Primarily, bonds are great for individuals nearing retirement age who can’t afford to risk investing in stocks.
Investing in stocks is riskier but also much more financially rewarding than bonds. If you’re choosing index funds, it mitigates the risk compared to trying to gamble on individual stocks like you’re the Wolf of Wall Street.
How to Save $1 Million With No Savings (By Age)
You might be reading this and thinking to yourself, “I have hardly any money saved.” It’s OK. Everyone is in a different spot in life. If you can make a plan, shed limiting beliefs about money, and work hard, you can do almost anything.
Regardless of age, here’s how you can save $1 million even if you’re starting out late.
Starting at 25 Years Old
If you’re 25 and don’t have a dime saved, don’t worry — you’re not alone. With the average college graduate having $39,400 of debt when entering the real world, it makes total sense. But, it’s up to you to pay off debt, start saving and plan for your financial future.
The sooner you can start stashing away money, the better. Because of compound interest, every year counts. Don’t wait another day to start investing any extra money. Here’s why.
Assuming a higher, 10% return, you will need to save about $158 per month to get to $1 million by the time you reach 65. If you’re getting lower returns of 6% then you’ll need to save $502 each month.
Your Action Plan
Assuming you can get 6-10% annual returns and don’t take the money out, you need to invest $158-$502 per month. You can do this several ways:
- Pay yourself first. Enroll in your 401k or open a Roth IRA to make sure you aren’t tempted into spending any extra money. Invest as much as you can, especially if your employer matches a specific amount.
- Start a side hustle. Check out these side hustles to make money outside of your job.
- Keep expenses low. The younger you are, the easier it is to keep costs low. Try to live like a college student as long as you can. Focus on paying off debt, keeping overhead low, and stashing away for the future.
- Live with a roommate. Housing is usually the most expensive part of adulthood. Cut costs by finding a roommate or two and start splitting rent and utility bills.
Starting at 35 Years Old
A lot can happen from the age of 25 to 35. Whether you buy a home, start a family or switch careers, it’s a time for change and growth. Hopefully, you will consistently save money throughout that time but it’s not always easy.
If you want to hit the seven-figure mark and don’t have any money saved at 35, you need to start saving a lot more aggressively. If you wait until you are 35 you will need to set aside nearly twice as much each month as if you had started at 25 years old.
Assuming a 6% return you would need to save $995 per month; assuming a 10% return you would need to save $442 each month. Here’s how to do it:
Your Action Plan
- Keep asking for raises and promotions.
Don’t get content with making the same amount every year or settling for the cost of living raises. Achieve more and do more at your job so you can get noticed and picked for positions that let you grow. Plus, you’ll earn more money!
- Stay away from lifestyle inflation.
If you get a raise at work or a nice salary bump from a new employer and you end up increasing your spending, your spending may cancel out your pay increase.
Instead of growing your lifestyle, try to keep your spending exactly the same. Sure, you can splurge here and there but try to save the rest for the future.
- Invest in yourself.
The more you learn, the more you earn. Invest in yourself heavily in your 30s so you can network, meet new people, and find new opportunities. The more skills you have, the more valuable you can become.
- Start a side business.
Your 20s are for “hustling.” Your 30s are the decade to create real wealth. Spend time outside of work doing something you love and can get paid for. Monetize your skills by starting a website, launching a course, or offering a coaching program.
- Increase your contributions.
Even if you can only increase your contributions by 1%, they will significantly be compounded over time.
Starting at 45 Years Old
If you’re 45 and broke you can still hit the $1 million figure in the next 20 years but it’s going to take discipline and consistency to make it happen. If you are earning a 10% return you will need to save about $1,317 per month. A 6% return means you’ll need to save $2,164 per month!
Your Action Plan
This can be challenging if you have kids in college but it’s possible if you take these steps.
- Downsize your home.
If you’ve got zero in the bank at 45 you should think about downsizing your home and investing money from your home sale.
- Keep increasing your contributions.
Don’t wait any longer to increase your contributions!
Starting at 50 Years Old
I’m sure if you’re in your 50’s and don’t have anything saved you’re probably ready to throw in the towel and accept working for the rest of your life. But I’m here to tell you that it’s still possible to hit $1 million by the time you’re 65.
Yes, it will require you to make some changes in your spending and saving. But if you want to make sure you aren’t working during your retirement years, you need to course-correct, and fast!
Assuming a 10% return, you need to save $2,413 a month. With a 6% return, you have to save $3,439 per month.
Your Action Plan
- Utilize catch-up contributions.
Your 401k and IRAs have “catch-up contributions” that allow you to save more in one of these tax-advantaged accounts. For 2018, the catch-up contribution for 401k’s is $6,000. That means you can save a total of $24,500 in your 401k or IRA for the year.
For a Roth IRA, the catch-up contribution is $1,000, making the total limit for 2018 $6,500. if you are older than 50, take advantage of catch-up contributions! Make saving your number one priority.
- Meet with a financial planner.
Make sure your portfolio is optimized so you can ensure that you aren’t too heavy in bonds and have enough in equities.
No matter if you’re five years or 30 years away from retirement, start saving now. The more you save now the more financial security you will have in the future. Thanks to the power of compound interest, the more time you let your money grow, the more you can transform small savings into a huge nest egg.
Remember, start as soon as you can. The sooner the better, even if it means making a few tweaks to your spending or adding a side hustle to earn more income.
Then, make sure to calculate the time you have until retirement so you can better decide how much to save each month.