Welcome back, my financial friends. We are digging into the dream that a ton of us have, and that’s to make a sweet million bucks. If you aren’t working tech in California, this may seem like quite the challenge, and it is – if you don’t know the right strategies to use.
Saving $1 million is easier than you think, but it won’t fall into your lap out of thin air. You don’t have to be a boomer or go back in time to do it, but anything good takes some work. If you’re ready, use these four strategies to save up your first million.
1. Start sooner, save less, and make more.
This short but sweet statement covers multiple important concepts in one. First, the sooner you start saving the easier it is to make your million-dollar journey. This is due to the magic of compound interest, which means the longer your money is in an interest-accumulating account, the faster it will grow – even if your contributions stay the same. A 25-year-old who invests $100 per month into an index fund will make more by the time they’re 50 compared to a 35-year-old who invests twice that amount until they’re 50. More money in the market does not beat more time in the market. If you start sooner, you save less, but you end up making more.
Here’s an example that makes me kick myself in the butt. I recently started putting more money into my Roth IRA retirement account. If you don’t know what that is, I highly recommend doing some research and starting one yourself if you qualify, because they’re an amazing way to grow your money tax-free. Ok, anyway, so I started putting in $250 towards my Roth every month about a year ago. It’s been fine and I’m glad I’m doing it, but I recently used a compound interest calculator to see how much I’ll likely have in 15 years if I’m making around 6% back annually, and my number was a bit over 70k. Awesome, since I will only have put in around 45k.
BUT, then, I got too curious and wondered what the difference would be if I started five years ago instead. Just a 5-year difference would have bumped me to over 111k total, with 60k all in. That means I would have put in 15k more but made over 40k extra in interest! It’s not about timing the market, friends, it’s about time in the market.
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2. Take advantage of company matches, dividends, and bad economic times.
If you saw a $100 bill on the floor, you’d probably pick it up, wouldn’t you? Strangely enough, most of us leave free money on the table every month when we ignore company matches for retirement accounts. Maybe it’s because retirement seems too far away or because we can’t touch the cash they’re offering, but this is free money.
Most companies offer a 3% match on your 401(k) or some other retirement plan. This means you put in 3% of your paycheck – pre-tax – and they put in that same amount to your plan, completely free! If you do nothing else, take the free money. Plus, having your savings deducted from your paycheck before it hits your account is another tactic that makes saving easier. Out of sight, out of mind.
Now, when it comes to dividends, you may be investing in certain stocks that pay out annual, quarterly, or even monthly dividends. Your best bet is to automatically reinvest those into more of the same stock, which is something you can program on your online brokerage. This allows you to keep buying the stock amid the highs and lows and growing your portfolio.
The final point here mentions taking advantage of hard or bad economic times. If you’re barely making ends meet or have lost your job, I am not telling you to risk your savings in the stock market, but what I am saying is that recessions and economic crises are the best times to build wealth. This is when names like Apple and Uber were founded, when stocks are bought “on sale,” and when the creative folks shine with new ideas, turning adversity into opportunity. Take the pandemic for instance – how many awesome companies and side hustles came out of that?
3. Change your job – not only your spending habits.
We didn’t include things like budgeting in this list because it goes without saying. We all know we’ll need to take a look at our spending and savings plan if we want to get on track to making our first million. The true strategy lies in expanding where your income is coming from and what return you’re getting on it. First things first – analyze and grow your professional skills and try to make more at your current position. If they aren’t paying up, start looking around. According to a new Pew Research Center analysis, half of workers who changed jobs during the pandemic saw a near-10% pay increase, while those who stayed put saw an inflation-adjusted loss of 2%. How’s that for crunching the numbers?
The second part is where you put your hard-earned cash. If you make six figures but spend it on luxury housing and cars, you won’t make a million. If you make six figures and buy three used vehicles that you then rent out on Turo or invest in real estate with a high return on investment, your money starts to make you money. Make your money work for you, don’t just work for your money.
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4. Plan, plan, plan.
This last point isn’t so much a strategy as it is a reminder. Saving $1 million is easier than you think, but it takes planning and enough will to stick to your plan. With all the free financial info online nowadays, there is no barrier to financial knowledge, but putting the petal to the metal is the true test. Are you ready? Let us know your plan in the comments!
Even if you’ve just saved $100, you’re on your way to saving your first million. It will take determination, but it is completely possible and doable – and you know I believe in you! Keep us posted on your journey and, as always, thanks for watching!