So you want to be a millionaire?
Saving $1 million is a lofty goal, but it can be attainable for folks who start early, reduce expenses and choose appropriate investments and savings accounts.
If you’re looking to steadily climb your way toward millionaire status, here are steps to increase your savings, reduce spending and reach your goals.
— Start early.
— Choose accounts wisely.
— Consider taxes.
— Embrace (smart) risk.
— Slash expenses.
— Rethink regular bills.
— Make more money.
— Protect yourself.
— Set goals.
— Conduct an annual review.
— Utilize employee benefits.
— Tackle debt.
— Automate savings.
— Avoid lifestyle inflation.
— Build good habits.
Of course, every saver has different responsibilities, challenges and financial hurdles when it comes to building wealth. But even if millionaire status seems out of reach, know that developing these good financial habits can help you build a more robust savings account, save for a rainy day and fund your financial goals.
Read on for more advice to save $1 million.
[See: 35 Ways to Save Money.]
When it comes to squirreling away $1 million, time is your best friend.
The earlier you start, the less money you’ll have to set aside each month and the more aggressive you can be with your investment allocation.
For example, assuming a 7% annualized return, you’d have to save around $900 per month to reach $1 million in 30 years, says Jamie Ebersole, a certified financial planner in Wellesley Hills, Massachusetts. If you have just 20 years, you’ll need to save around $2,000 each month. That lost decade makes a sizable difference.
Use a million-dollar savings calculator to play around with how different time horizons impact your million-dollar goal.
Choose Accounts Wisely
Not all savings and investment accounts are the same. Identify the correct financial vehicle for your goals. Your $1 million may reside in a few different accounts, including various retirement savings accounts, an emergency fund and a health savings account, or HSA.
Understand the tax and interest-rate advantages (or disadvantages) of each account.
Allowing money to grow in a tax-advantaged savings vehicle can have compounding benefits and help you reach millionaire status more quickly.
“Any opportunity you can get on the tax side is going to pay off down the line,” Ebersole says.
For example, retirement funds can grow tax-deferred in dedicated retirement accounts such as your employer’s 401(k). Medical savings receive a triple tax benefit in a health savings account, or HSA. College savings earn tax breaks in a 529 account.
Embrace (Smart) Risk
You’re not going to achieve a healthy return — and eventually save $1 million — if you squirrel away cash under the mattress. Prepare to take on some investment risk by making educated and savvy deposits into low-cost financial products. “You need something that’s going to be able to give you returns above inflation to keep the portfolio growing,” Ebersole says.
Your exact asset allocation should depend on your goals and time horizon. When it comes to your retirement accounts, where you may house the bulk of your savings, consider taking the Goldilocks approach, says Marguerita M. Cheng, certified financial planner and founder of Blue Ocean Global Wealth in Gaithersburg, Maryland. “Don’t day trade in your 401(k) — think long-term,” she says. “But don’t set it and forget it either.”
One straightforward way to divert more money toward savings is to spend less on everyday expenses.
When it comes to tamping down on spending, “cut out the low-hanging fruit,” says Roger Ma, certified financial planner at lifelaidout and author of “Work Your Money, Not Your Life.”
Nix unused subscriptions, bank fees and other service fees. Re-shop your insurance or switch mobile phone providers. It’s not about rigorous self-denial but aligning your spending with your values, Ma says. These are small changes, but everything counts when you’re aiming for $1 million.
Rethink Big Bills
Cutting small costs is helpful, but don’t forget to reevaluate major expenses, including housing and transportation. “It’s the big-ticket items that are really going to have the biggest impact,” Ebersole says.
Consider downsizing, moving to a less expensive neighborhood, taking on a roommate or moving back home. Does it make sense to relocate while your employer is allowing remote work? Can you downgrade your car? These spending cuts will add up substantially over time.
Make More Money
It’s easier said than done, but increasing your earnings through your primary career or secondary side hustle can allow you to sock away even more cash and meet your millionaire status faster.
“If your goal is to make $1 million, you want to advance your career,” Ebersole says.
Explore whether your employer will pay for continuing education courses such as a professional certificate or master’s degree. Make sure to negotiate salary and jockey for raises. If you have time, consider part-time gigs such as taking a seasonal job. But don’t let your side hustle reduce the quality of your work at your primary job.
It takes time to save $1 million. But all of that hard work can be undone by one expensive accident or lawsuit.
Protect your finances by having sufficient health insurance, property insurance, disability insurance and umbrella insurance coverage.
A robust emergency fund will protect you from having to dip into long-term savings or run up your credit card after an accident.
[Read: How to Build an Emergency Fund.]
Becoming a millionaire is a large goal, but don’t forget to set small goals to keep you motivated and to help direct how you save and invest your money.
“Make sure your allocations are still in line with your goals,” Cheng says.
Conduct an Annual Review
You’ll want to check on your progress toward making $1 million regularly.
Once per year, review your annual spending, identifying places where you could spend less and ways to save more. It may be time to rebalance your investment portfolio or rethink your goals.
Utilize Employee Benefits
Many workers focus on salary when it comes to employee compensation. But there’s often a ton of value in your employee benefits package. Taking advantage of workplace benefits can help you reach $1 million in savings more quickly and efficiently. A few key benefits to note are:
— Employee 401(k) and match. Save enough to at least earn that match.
— Health insurance. Choose the right policy for your health needs and financial situation.
— Disability insurance. Protect your ability to earn a paycheck. Make sure you have enough and understand whether your benefits are taxed.
— Education reimbursement. Investing in your career is essential to saving $1 million. Understand what kinds of educational programs your bosses will pay for you to complete.
— Health savings accounts. These accounts can help you tackle medical expenses more efficiently. Participants in high-deductible health plans typically qualify.
One barrier to saving $1 million is high-interest debt. Pay off credit cards and other pricey debt aggressively. That said, you may want to prioritize high-yield savings over low-interest debt if you have a good rate on, say, your mortgage.
Whatever you can do to make sure your money is automatically saved and bypasses your checking account, the more disciplined and steady you’ll be toward reaching your $1 million goal.
“I think automation is very helpful because you don’t have to stop and think about it,” Cheng says.
Avoid Lifestyle Inflation
As you grow your career and earn higher wages, make sure your spending doesn’t increase alongside your paycheck. Set aside a percentage of each annual raise or side hustle payment in your savings account.
Continue to live below your means, and you’ll be able to set aside more money as your earnings increase.
“Don’t go from the Toyota Corolla straight to the Lamborghini,” Ebersole says. “Maintaining that gap between your earnings and expenses is important.”
Build Good Habits
Now that you know how to cut spending, increase saving and invest and protect your earning ability, you’re on your way to becoming a millionaire.
Getting off the ground is often the toughest part. As you build savings and earn raises, the process should get easier. Making those good financial habits into a routine will more effectively get you to that million-dollar mark, Ma says. “The second million’s quicker than the first million,” he says.
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