What It Takes to Become A Millionaire

millionaireSo what does it take to become a millionaire?

If you Google “how to become a millionaire,” you will find a lot of suggestions, including a very popular post from Jeremy at Generation X Finance, one from Free Money Finance, as well as the latest addition on Blueprint for Financial Prosperity. While I agree that the suggestions from these posts are practical, I myself am not a big fan of “how to become a millionaire” (I don’t read any book on that subject). Not that I don’t want to, but I don’t think it’s a goal that needs five steps or six ways. Why not four or eight? In fact, if you go through those discussions, you will realize that all the suggestions come down to Earn more and save more, plus some disciplines, whether you earn it from your job, your rental property, or your business, whether you save it in your IRA, 401(k), or savings account.

That said, you may not have one million dollars under your name if you only save $100 a month, though you are disciplined enough to save that amount every month. For example, if you save $100 a month and put the money in your bank account that earns 3.00% or 4.00% return, you will never have a chance to be a millionaire if that’s all you do because that amount of saving will take some 100 years to become a million!

Get the most of your money with these High-Yield Savings Accounts:

The following is plot of what I called “What It Takes To Become A Millionaire.” It’s not about what you should do, getting a second job, living below your mean, or anything like that. It’s rather about when you will be a millionaire if you save/invest a certain amount of money with salary being your main source of income. Given a monthly saving ($100, $200, … $3,600 in all accounts) and an annual return (from 3% to 25%) you assume your money will earn, it tells you how many years have to pass before you will have one million dollars (interests compounded annually), when you have zero to begin with.

how to become a millionaire

From the plot, to accumulate $1,000,000 in a reasonable time period, at least $500 should be set aside every month with the assumption that the average long-term return is around 8%. To shorten the time required, the savings rate has to go up, unless the return is extraordinary. However, that could happen only in the short period of time. Excessive return is something we can’t rely on in the long-term.

A table for the above plot is given next for easy lookup.

Monthly
savings($)
/Annual
return(%)
100 200 500 800 1,000 1,200 1,500 2,000 2,500 3,000 3,600
3 110 88 60 48 42 38 33 27 23 20 18
4 90 73 52 42 37 34 30 25 21 19 17
5 76 63 45 37 33 30 27 23 20 18 16
6 67 55 41 34 30 28 25 21 19 17 15
7 61 50 37 31 28 26 23 20 18 16 14
8 54 45 34 29 26 24 22 19 17 15 13
9 50 42 32 27 24 23 20 18 16 14 13
10 46 39 30 25 23 21 19 17 15 14 12
11 43 36 28 24 22 20 18 16 14 13 12
12 40 34 26 22 21 19 18 15 14 13 12
13 38 32 25 21 20 18 17 15 13 12 11
14 36 31 24 20 19 18 16 14 13 12 11
15 34 29 23 20 18 17 15 14 12 11 10
16 32 28 22 19 17 16 15 13 12 11 10
17 31 27 21 18 17 16 14 13 12 11 10
18 30 26 20 18 16 15 14 12 11 10 10
19 29 25 20 17 16 15 14 12 11 10 9
20 28 24 19 16 15 14 13 11 11 10 9
21 27 23 18 16 15 14 13 11 10 10 9
22 26 22 18 15 14 14 13 11 10 9 9
23 25 22 17 15 14 14 12 10 10 9 8
24 24 21 17 15 14 13 12 10 10 9 8
25 23 20 16 14 13 13 12 10 10 9 8

How long will it take you to become a millionaire, if that’s your goal?

*Photo from Buzzle.com

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This post was written by Sun You can find out more about Sun and his activities on Facebook , or follow him on Twitter .

9 Responses to “What It Takes to Become A Millionaire”

  1. Enough Wealth |  Feb 14, 2008 at 10:44 pm

    It’s interesting that the table was pretty much spot on for my situation – I always aimed at saving around $1000 per month and invested in stocks and real estate which produced around 8%pa return. I hit millionaire status last year which was around 26 years after I started saving seriously while working and going to uni.

    The table also shows that
    a) doubling your savings rate won’t get you to 1 million in half the time. For example, saving $1000/mo at 8% takes 26 years, but if you managed to live extr-frugally and saved twice as much, you’d still take 19 years to become a millionaire. Possibly not worth the big impact on your lifestyle that doubling your savings rate for 19 would have.
    b) High income/savings rates make ROI less important. For example, if you can save $3000/mo you would become a millionaire after 15 years if your investments make 8%, but this would only reduce to 11 years if you managed to achieve 15% returns (with a higher risk of going broke!). In contrast, if you’re only saving $500/mo it would take 34 years to become a millionaire investing at 8%, but if you managed to get 15% returns your $500/mo savings would make you a millionaire in 23 years.

    Finally, it’s interesting to see that by helping my sons save just $200/mo and investing for the long term in high growth investments such as stocks (that might make 11%pa), they would become millionaires in their own right by age 36.

  2. Lisa |  Feb 23, 2008 at 12:25 pm

    I really like this graph and table. I find numbers always tell the truth, as long as you look at them correctly. You did that nicely here.

    Lisa

  3. Manshu |  Dec 18, 2008 at 12:53 pm

    That’s a good graph Sun.

  4. MoneyStand |  Dec 23, 2008 at 7:09 am

    These charts are great I save £300 per month which is about $500 but $1,000,000 of your American dollars is about £700,000 so it’ll be a few more years on top of what you’ve mentioned.

  5. investor |  Dec 26, 2008 at 6:54 pm

    Off topic, but check this out.

    http://www.schwab.com/public/schwab/banking_lending/credit_card

  6. Bill M |  Dec 29, 2008 at 2:23 pm

    Very Nice graph, would be nice if it was bigger..

  7. Jesse |  Jan 02, 2009 at 12:15 pm

    This is a great example of why you need to start investing in your 401k as early as possible. Most people won’t be able to put away “extra money” monthly religiously but those same people can easily be contributing to a 401k and not even know the difference. Gotta love the wonder that is compounding interest.

  8. Super Saver |  Jan 10, 2009 at 11:04 pm

    In 2008, the path to becoming a millionaire was to begin the year as a multi-millionaire :-)

  9. Brenda M |  Jan 11, 2009 at 4:53 am

    I’m just gonna say this for a second time….OMG

    Wow, I just have to say one thing.

    I completely stumbled across this thread.

    I was shocked when I was reading the credit card limits on some posts, as I have 2 measly credit cards that are maxed out for a whopping total of 1500 dollars.

    Just so you guys know as your trying to figure out how to build your big money into bigger money, that you could always contact me.

    My life would literally be turned around with even 5000 dollars.

    I have 2 disabled children and a very hardworking husband in construction and we barely make it by……

    Think helping someone….

    might not grow your money, but it might make you feel good…

    Ok, I’m done…lol, I think I’ve gone a little type crazy…haha

    signing of=)