Save a Million Dollars

by on August 24, 2011

A million dollars isn’t as much as it used to be, but it is a number that most people get excited about when it comes to saving and investing.  The easiest way to save a million dollars is to save as much money as you can every month.  The second best way is to invest it in investments that grow quickly.  And the third best way is to start when you are young.  Let’s look at a few scenarios to see what it takes to get to the magic number of one million dollars.

Starting Young.  If you start investing while you’re young, you’ll have the best chance of saving a million dollars.  Let’s say that you start saving $100 a month at the age of 20.  If you earn 7% per year on your investments, you will save a million dollars in 58 years, when you are 78.  Now, lets say you start investing $100 per month at 20, but you increase the amount you invest each year by 10%.  For example, you save $100 in year 1 and in year 2 you save $110 per month.  And then $121 per month in year 3.  Now, while earning 7% per year, you will save a million dollars in just 36 years, or when you are 56 years young!  If you could earn 10% per year instead of 7%, you would save a million dollars in just 32 years, or when you are 52!

Starting Late But Saving A Lot Each Month.  Let’s say you get off to a slow start and don’t start saving money until you are 40, but you can save $1,000 each month.  If you earn 7% on your savings, it will take you 27 years to save a million and you will be 67.  However, if you can increase your return to 10%, it will take just 22 years to get there and you will be 62.  This clearly illustrates the point that you need to start early to give your savings time to grow by compounding.

Getting Great Returns on Your Investments.   Okay, let’s assume that you are 30 years old and you can save $500 per month and you earn a 5% return.  It will take you 45 years to reach a million dollars and you’ll be 75.  However, if you can get great long term returns the time to reach a million will shrink dramatically.  The stock market has returned about 12% historically, so lets assume you can get a 12% return each year.  That $500 per month will reach a million dollars in just 25 years, or half the time of the 5% return.

Starting Young, Saving A Lot and Getting a Great Return.  The best scenario that we can think of is maximizing all three factors of money growth.  Let’s assume you start investing $500 per month at 20 years old, that you make 12% return on your investments, and that you increase the amount saved by 10% each year.  You’ll reach a million dollars in just 19 1/2 years, or before you are 30!

Now, take these examples and make a plan for yourself to save your first million dollars!  Use your company’s 401k match and tax free compounding to help you get there even faster.  Also, brush up on your investing skills to see if you can try to match the return of the market, or even outperform it.  And most importantly, always live below your means so that you can continue to save every month!

{ 1 comment… read it below or add one }

pocs September 5, 2012 at 11:02 am

Your information and tips are very valuable and informative to those that have the money to invest. I realize that investing money means taking some risk. A million dollars would be nice, in fact great. But might it be possible to achieve this with say only a hundred or two to invest. Though it would be difficult for me to save and then invest this amount, I think it might be worth the risk.

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